Getting stuck into cash flow advisory with Byron McLean

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In the last few weeks we invited advisors from Auckland, Wellington and Christchurch to join us and our app partners in exploring the opportunity of cash flow advisory.

There were about 300 people who made time after a long day to come along to learn and share stories with their peers. I opened these sessions by saying how grateful I was for that time. Because for service based industries, time is their most valuable resource and the act of committing just these few initial hours to learn and explore more is no small gesture.

It’s often said that cash flow is the life blood of small business, so the question was posed, how are we doing as a nation?

Xero Small Business Insights March data tells us that the percentage of businesses that are cash flow positive hit a new high (57%), which is excellent news during the period of the year where we start to see a bit of trading activity ease off as businesses become more cash conscious over winter. Despite this, we need to be particularly mindful that getting paid is still an issue, with the average days late across all payment terms being 9.52 days.

The Cash Flow Challenge

When we first launched the cash flow advisory playbook last year, we surveyed small businesses on how they look at cash flow as part of their operations and found the following insights.

Owners approach cash flow differently based on their attitudes to debt (proactive, reactive, risk averse)
They’re typically problem led (stemming from their own time challenges) and have a heightened interest when there’s an issue to deal with, often focusing on the next 30 days
They might defer payment when there’s a cash shortfall to handpicked suppliers, while paying others
They need to understand what a cash flow forecast is based on to feel confident in how they’ll use it

We also worked with many different accounting practices across New Zealand to look at how they’re approaching advisory and opportunities for cash flow forecasting.

Cash flow forecasts are predominantly and often the output of a reactive, compliance need (bank or lending approval), not something for proactive decision making
Practice’s wanted to provide more proactive reports, but don’t have the time to do it for all of the right clients, all of the time as seasonal work loads shift
And lastly, many believe that clients aren’t really prepared to pay for it as a service

From my experience working directly with small business owners, practices and app partners, I wanted to challenge whether as advisors, we can confidently answer the following:

Holistically, what are our clients really here to do? financially, personally, emotionally, both within the business, but particularly outside of it.
Are their goal posts defined and tangible? If so, do we know them as well?

Then it becomes a bit more logical

If those goals are defined, what can we do to help them get there?
And how will we use those emotional and social drivers to compel them into action?

It’s an interesting virtuous cycle. By freeing up more unstructured, personal time with our clients, we establish rapport, trust and show our vulnerabilities. That often leads to the uh-huh that really sits at the core of their drives. Sure, we’re all different and many of us want to run successful, profitable businesses that allow us to pay and extract strong living wages, but why? Maybe we just want to make a bit more money to hire that next staff member that gives us 5 additional hours out of the business each night to instead spend on ourselves, or with our families.

Without getting to the root of these drivers, we are missing the most powerful tool for influencing action, which often leads back to more opportunities to advise, which leads to more understanding and trust.

Cash flow advisory is a hugely sighted pain and area of concern for business owners that needs to be better served. And a lot of the solutions that we explore can actually be employed across the practice and used with confidence by staff before being put into the hands of clients. This is critically important for usage and adoption. By embedding and using these tools on the practice, we free up labour efficiencies that create more time to do more advisory.

Cash flow playbook

The cash flow playbook Xero, which launched late last year, covers three stages that enable you to offer simple advisory services:

Generating accurate and complete data by automating data – both with the use of bank rules bill automation solutions to make coding easier for us and our clients, freeing up time both at point of coding and time of processing when reports are needed.
Providing business insights – utilising the complete and extensive business data you’ve captured and processed, turning it into valuable reporting and forecasting.
Creating an action plan. This is where we’ll hone in on the key levers that will achieve the specific goal for our client. In the playbook, we explore on getting paid and capital.

In one market we see Xero pacesetter practices that are 45% more efficient in time spent processing in terms of hours spent per client, per year. This results in time advantages to redeploy into more valuable activities, like client facing sessions.

By making sure our foundations of data are up to date, accurate and complete, we can quickly and efficiently turn these reports around when they’re needed which can be critical for the client. With the processing efficiencies, we’re able to more competitively price our monthly offerings which opens the door for more recurring contact, enriched relationships and greater trust for the advice we can offer.

This really opens the door for the recommendations you may offer, like attaching Stripe or GoCardless to help the client get paid faster, or helping them free up admin time by enabling invoice reminders. Xero small business research shows this cost small business owners 3 hours a month of their valuable time.

And remember the observation from earlier about businesses being selective about who they pay when times are tough. Your client may have a healthy business and balance sheet, except for the fact that they may be on the end of a delayed payment due to someone else’s struggles. If they need quick access to lending in order to alleviate their cash flow in the next 30 days, your ability to quickly reassure them that things will be okay and process the necessary steps to get funds approved whether from the bank or a Xero lending integration partner and into their account can make a world of difference if they’re worried about making the next pay-run.

A few parting bits of advice

Don’t try and implement change alone. Tell people in your practice why you think it’s important and bring them on the journey.
Focus on one app first, implement it for the practice and let your staff find their confidence with it as a tool before you start to put it in the hands of your clients
Have an unbilled catch up with your client to get close to their real emotional drivers as possible. Knowing these makes it easier to get them to act on advice.
Introduce your clients to what you can do with an offering of non-billable time. While they may not be willing to pay for a new service immediately with their current understanding of it, once you’ve made it tangible, it’s much easier to see the value and create that new line of service revenue.

You’ve already made the time commitment to read about bettering your service offering, now comes the last part of committing that time to implement and share your advice with your clients.

You’ve got this.

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