For many business owners cash flow is a struggle. Business runs on cash. Even credit cards and PayPal eventually convert into cash. The best kind of cash comes from the customer. It doesn’t have to be paid back unless you don’t hold up your end of the bargain. Keeping to the basics you have four common sense choices to increase cash flow:
- Speed it up coming in
- Slow it down going out
- Stop it from going out altogether
- Bring more in
Each business is different and unique; however, there are multiple options to apply the four common sense choices. Some options provide short-term relief; others can provide long-term financial health. Here are some specific ideas to improve and increase cash flow:
Speed it up coming in:
- Invoice your customer and collect at the time it is of greatest benefit
- Be clear about your billing terms. Discuss the elephant in the room.
- Put the terms in writing on the invoice – note actual date due
- Offer a discount for earlier payment.
- Train your customers. Call new customers the week before bill is due – make sure they received the invoice? Any problems with the product or service received?
- Review your billing terms. Ask for your cost up front for special orders or to guarantee a time and date.
Slow it down from going out:
- Ask your vendors for terms. Attempt to match those terms to how you will receive payment for the sale of those items.
Stop it from going out altogether:
- Drop the customers you are losing money on.
- Stop selling products and services you don’t make a profit or require extensive cash to sell.
- Reduce your monthly payments. Don’t buy it until you can pay for it. Pay extra when the cash flow is good.
- Review your expenses each month. Are you getting full value for what you are paying for? Are you fully utilizing what you purchased? Do you have software not being used? Are you maximizing your marketing costs?
- Focus your sales efforts on the resources you have in excess. Use what you have before purchasing more.
Bring more in:
- Focus on your best customers. Do you have all their business? Can you provide additional value?
- Can you charge for what you are giving away for free?
- Raise your prices. You might lose some sales, but you will make a higher profit on those that you keep.
- Super size it! Think McDonalds – do you want fries with that? Have something available that will offer more value to the customer and increase the price you can charge.
- Offer three value levels and let your customer choose.
- Identify your most profitable product or service and focus your sales efforts on that.
- Reactivate previous customers. First, make sure that you want them. It typically cost less to serve a prior customer than find a new one
Once your immediate crisis is over it is not the time to stop! Here are three steps to prevent cash flow issues from happening in the future – (1) review your system and procedures on a regular basis to continually improve your results, (2) review your overhead costs to keep them as flexible as possible and affordable and (3) keep in touch with your customers by examining how your procedures touch them and to know their needs.
Cash is the life blood of a business. A financially healthy business has strong systems in place to keep it flowing.
“The three most dreaded words in the English language are ‘negative cash flow’.”
Author: David Tang a Hong Kong businessman
By Mary Guldan-Lindstrom