Want to sleep better at night? Tune up your cash flow.
A positive, steady and predictable cash flow situation will give you comfort despite current economic uncertainties. A healthy cash flow lets you plan ahead with confidence. And, by making a few minor changes to the way you process money your business should be in a much better position to enjoy an upswing once the economy improves.
Major cash flow influencers include:
1. Sales volume
2. Business expenses
3. Payment terms
4. Market conditions.
Increasing sales volume
Of course more sales should ease cash flow crunches. However, it isn’t always easy to add new customers in a cautious economy. It seems everyone is sitting tight for the moment. Instead, focus on generating additional dollars from existing customers.
• Sell more. Look for ways to increase the size of each customer transaction. Called a volume strategy, it can be done by suggesting add-ons that complement a purchase. Automobile dealers, for example, are experts at selling items such as audio systems, trim packages and extended warranties to complement a new vehicle purchase.
• Sell more often. Invite your existing customers to buy more frequently. Send reminders to re-order. Offer frequency discounts. Add products or services that are consumed in less time.
Reduce business expenses
Lean and mean is the order of the day, so put all of your expenses under a microscope to identify possible savings.
• Payroll. How can you keep (and motivate) your great team without spending more payroll cash? Assess your employee compensation packages with a creative eye. Your team might prefer extra vacation days, workday flextime, performance contests or other cashless perks.
• Operating expenses. The bills we pay every month likely contain hidden savings. Comb through those bills we auto-pay each month such as heating, insurance, electricity, telephone, Internet access, office supplies and janitorial. Call each vendor and ask for their suggestions to save you money.
Revise payment terms
Can you collect your money any faster? Can you delay outgoing cash? Try to do both.
Collecting all of your sales dollars upfront is ideal. Airlines, insurers and Internet retailers charge in advance. Why can’t you? Consider revising your payment policy to collect all of your fees upon commitment. Offer customers the option to pay by credit card.
If you must issue an invoice, assess the financial impact to offering an early payment discount like 2%, net 15 days. Discourage late payments by attaching a high penalty.
Now, apply the same tactics to outgoing cash.
Negotiate generous early payment discounts with your suppliers (chances are they would love cash sooner than later). Or, negotiate extended penalty-free payment terms of 60 to 120 days. Enjoy an additional period of interest-free financing by using your business credit card to pay suppliers (providing you pay your balance within 30 days). And, challenge your suppliers to produce savings or efficiencies for your business to keep your business.
While you can’t control the economy, you can change your response to it. Consider:
• Selling someplace else. Business may be slow in your usual marketplace but it might be booming elsewhere. Investigate new markets.
• Re-write your business plan. Gather opinion from your team of business advisors (lawyer, accountant, Small Business advisor, financial advisor) regarding your current business plan. Together you may identify fresh strategies to achieve your goals.
o Use the interactive and free Scotia Plan Writer for business tool.
• Emulate competitors. Pay close attention to the way your industry players are responding to market conditions. Are they lowering prices? Acquiring suppliers? Re-positioning their brand? Exporting? Learn what you can from competitors to take away any tactics that may work for your business.
Our free Scotia Cash Flow for business Tool makes it easy to improve your cash flow health.
Your Scotiabank Small Business Advisor can work with you to assess your cash flow and explore solutions. Contact your advisor today.
How is your business boosting its cash flow? Have you tried any of these suggestions? Please share your thoughts with other business owners below.
By Roger Pierce, Small Business Expert for Scotiabank
Article originally featured on the website: Get Growing for Business. Find additional information and tools relevant to your business.