Cash flow is king for small business owners. It doesn’t matter whether you’ve just secured your biggest customer or your first six figure sales deal, without cash to pay the bills, yourself, and your employees, you may as well shut up shop now.
But what are the basics of good cash flow management and what steps can you take to ensure you are covering your costs and expenses, while earning an income? Here are some strategic and tactical steps you can take to squeeze more cash flow out of your business.
5 Ways to Get More Cash Flow Out of Your Business
1. Develop a Cash Flow Forecast
When is money coming in? When does it need to go out? What money will you be left with at the end of each month? Do you anticipate pitfalls or a lean period where you may need to call on other cash reserves? Put together a simple cash flow projection and you’ll get your answers.
All you need is a basic spreadsheet and a few hours set aside each month. The good news is that there are several free available templates that you can take advantage of. SCORE, a government-sponsored small business mentoring organization, offers several free business planning templates on its website, including a sample cash flow projection spreadsheet to get you started.
2. Collect Overdue Accounts – It Works!
Late payments can destroy a small business and quick action should be taken to collect on these. Pick up the phone and call your client point of contact or, if you have the number, the person who writes the check. Almost 100% of the time (unless they are in financial difficulty themselves) a client will follow through on your call and find out where your money is! This is not a time to feel guilty for asking. Be sure to follow the call with an email copy of the invoice and, if necessary, issue a statement showing the outstanding payment owed.
Final Tip: Always try to collect on your own; a collection agency will take 30%.
If you really are stuck, donate it to charity and take the tax deduction write off.
3. Sweeten the Deal – Encourage Customers to Pay in Advance
A discount for early payment is a common strategy for sweetening a deal while improving cash flow. On the flip side you might also consider building a late fee contingency into your customer contracts – many businesses find this “dis-incentive” approach more successful than dangling a carrot in front of the donkey!
Retailers and service-based businesses can also take advantage of prepay scenarios – for example, a health spa could offer six treatments for the price of seven, if you sign up and pay in advance. This is an often-underused pricing strategy that can raise quick cash for your business while enticing customers to purchase your services.
4. Raise your Prices
If your business is doing well, but you can’t seem to sustain cash flow, then it’s time to look at your pricing. Worried about losing your customers as a result? Don’t be. If you know your costs, know your market, and know your customers, you’ll remain competitive.
To do this, ask yourself the following:
- Are customers willing to pay a higher price for features?
- Do competitors differentiate themselves on quality, service, and benefits, or is all the differentiation based on price?
- How much do customers need what you’re selling, and how easy is it for them to find something else?
If there is a higher perceived value, people will pay more. One way to do this is to raise prices on stock or services that customers tend to buy regardless of the price, or where it won’t get noticed. Alternatively, feature lower-end offerings in a product or service range at rock-bottom prices, while keeping prices up for goods in the same range that have a higher-perceived value.
5. Move Dead Inventory
One final way to inject more cash into your business is to release some of what’s tied up in your warehouse or store. Now you want to make a profit while reducing that inventory, so think of some ways to shift dead stock, while making it enticing enough that your buyer sees the value in it.
BOGO campaigns are a good way to do this (“buy one get one” other item for half price, and so on) just make sure that the non-discounted item has a high margin to offset any low margins on the sale item. Alternatively, offer a bundle and talk to your regular customers to see if they’ll buy the bundle at a discounted price. You could also look at ways to incentivize your sales team to help you shift stock.
What strategies have worked for you when it comes to injecting cash flow into your small business?
About Fundbox: Fundbox is a Technology company helping small businesses grow, by managing their cash flow better and by overcoming short cash flow gaps.