If your business is experiencing cash flow problems, you can most likely trace the cause to one of the following areas:
- Your sales are not high enough.
- You are not collecting your receivables in a timely matter.
- Your prices are too low.
- You are spending too much.
More often than not, a business that is experiencing cash flow problems has some combination of the above. In fact, many businesses I have worked with have all four problems. If you are having cash problems, I would look at these areas in the following order:
You are spending too much. Review every expense item with an eye toward reducing or eliminating it. You need to be brutal about it. Nothing and no one should be exempt from the spending cuts. Your business’s very survival may depend on it. Be sure to look at your personal spending as well. Many small businesses run into cash problems because the owners are taking too much money out of the business.
You are not collecting your receivables in a timely matter. Business owners enjoy selling and working on delivering the product or service so much that they often ignore their receivables. Plus, calling customers who owe you money takes time and is often stressful. Unfortunately, it has to be done, and the owner often has to step in and handle the tough ones. Learn more about this in “Collecting Your Receivables in 3 Easy Steps.”
Your prices are too low. A small business should never try to compete on price. You don’t have the buying power or the economies of scale to compete with “big boys” in your industry. You should pick a niche whose needs you can fulfill because the “big boys” don’t think it is worth their time. Be sure to check out our article in this issue titled “Never Sell a Commodity.”
Many business owners are afraid to raise prices because they are afraid to lose sales. Learn how to overcome this by reading “How to Raise Your Prices in Any Industry and In Any Economy!”
Your sales are not high enough. As we have discussed in many articles, the fastest way to increase sales is by selling more to your current customers.
After that, you should put together a comprehensive marketing and sales plan to ensure that your sales grow continuously. A good book for any business owner is Guerrilla Marketing by Jay Conrad Levinson.