In my thirty years of working with small businesses, just about every business owner that I have worked with has been surprised by the amount of cash that they are leaving on the table. In tough times, like now, tracking every dollar your business uses and making sure your cash is spent wisely will lead to more cash in your bank account. Making changes early on can be the difference between success and bankruptcy. Here are some ideas that usually increase business cash flow quickly:
Almost every business is ignoring one sales area that is a goldmine—their current customers! If the business owner works on nothing else, they should work on the following systems:
1. Improve your systems to increase your lead conversion rate. Your goal is to turn more of your customer contacts into sales.
2. Improve your systems to increase the order size by upselling. Create a list of products and services that go together logically and make sure your staff is trained to offer them to every customer.
3. Improve your systems to increase repeat sales. Develop incentives for your customers to shop with you more often. Increase your communication with your current customers about new products and services you have that will solve their problems.
4. Improve your systems for customer referrals. Ask for referrals from your best customers. Pick up The Referral Engine by John Jantschfor great ideas on getting referrals.
Increase your prices
The quickest and easiest way to increase your income is to raise your prices. If you are worried about losing customers, do the math. You will be surprised by how many customers you can lose and still make the same sales amount. And most business owners find that they make even more money with less work.
Speed up your collections
Review your receivables now and every week. Call every customer who is past due as soon as they become late. There is no secret to collecting receivables—the owner just has to stay on top of it constantly! Don’t let someone else’s cash flow problem become your cash flow problem.
Avoid receivables entirely by getting prepayments, larger down payments, or requiring payment at the time of delivery. Additionally, speed up your billing cycle by billing weekly instead of monthly. As a last resort, look into receivable financing.
Control your inventory
Money tied up in your inventory is money that is not in your bank account and money that isn’t working for you. Examine your inventory and identify those items that are not selling quickly. Get rid of these by lowering your sales price until they sell. Remember:
- It is better to sell it today at a 10 percent discount than six months from now at your normal price.
- If it doesn’t sell at a 10 percent discount, it is better to sell it at a 25 percent discount today than at its normal price a year from now.
- If it still doesn’t sell, sell it at cost and reinvest the money into products that are selling for a profit.
- If you can’t sell an item at cost, selling it below cost is better than keeping it on the shelf and throwing it away in a couple of years.
A ten percent across-the-board cost-cutting approach probably won’t work. Cutting advertising will probably cut sales, too. So the proper method is to review all expenses line by line and look at ways to eliminate or reduce the cost item. If you haven’t bid an item out recently, you are probably spending too much on it.
Control your outgoing cash flow
Ask your customers to supply raw material. Explore just-in-time (JIT) inventory options. As a last option, look into floor plan financing of your inventory.
Your suppliers have a stake in your survival, so they will often work with you if you can show them it is in their best interest. Ask for longer payment terms, even if you have to offer to pay a slightly higher price (of course, keep an eye on your margins and decide if you can pass these costs onto your customers).
There are many other things you can do, but this is a great starting point. Before you pay for anything, just ask yourself, “Can I live without this right now?” If you can—wait! Keep cash in your bank account for as long as you can.