How to Improve Your Cash Flow
Sunday Dec. 30th, 2012
Managing cash flow in a business is like monitoring your blood pressure to remain healthy. Cash flow is the amount of money that flows in and out of your business. The goal is to have more coming in from sales, accounts receivable and smart money management. Negative cash flow means that the business is losing money and if that trend continues for very long the business can no longer exist. Here are a few ideas to keep the cash drawer at a comfortable level.
Many businesses find that in order to do business they must issue credit to either customers or suppliers. That increases costs. Someone has to keep track of who owes what and when and in some cases make collection calls or send out letters to overdue customers. Anything you can do to reduce the time between the issuing of the credit and the time of collection goes in the plus column.
Many businesses offer a discount for early or on time payment and a penalty for the alternative. Spend some time reviewing your accounts receivable for the past year. If you find customers that are continually late payers you have to evaluate their value to your company. You might find it necessary to require half down on purchases from these customers just to encourage them to become better payers.
Cut Waste and UpSell
Cutting waste is the same as increasing sales. In fact cutting waste is easier and faster than finding and developing new customers. You must identify any policies or procedures that create redo’s or overruns on jobs. If specific employees are the problem then training or replacement must be considered.
Employees need to understand that add on sales are critical to their paycheck and the health of the business. Laptops should never leave the store without a case, or some additional software. I’m not talking about “hard sell,” I’m talking about showing added value that makes you more valuable to your customers.
More and more businesses are using computer programs that manage inventory. When products reach a certain level an order is triggered to bring in new merchandise just as the current inventory is running out. It’s commonly called “just in time” delivery. This process can make budgeting your cash flow much more efficient.
Hiring and Firing
High unemployment has been the norm for the past several years. The main reason is, payroll is one of the biggest, if not THE biggest expense of most businesses. If someone leaves your employ don’t rehire immediately. You might find that you can run things just as efficiently without replacing that person. If you find that things are tight then by all means hire the best available person. You might be able to pick up a very qualified person who is unhappily employed by your biggest competitor.
Share Your Numbers With Employees
I’ve encouraged many companies to share the numbers with employees at monthly meetings. By looking at things that affect their paychecks it makes them take more of an ownership position in their job. Letting them know the plateaus that can generate a raise can be a great incentive to improve job performance. Show the advantages of moving higher margin products or services. Solicit their input for any ideas that might reduce costs or save time.
Using Advertising and Marketing Dollars Wisely
Compare advertising costs to the dollars produced. Is your advertising paying off? You should see a spike in traffic when your advertising is higher or it’s not being effective. The business that cuts advertising to save money is like the man who stops a watch to save time. It doesn’t work. It’s not how much you spend but where you spend it that makes all the difference. Make sure that your advertising message is in the right venue and reaching your ideal customer. People don’t need tires every day but every day someone needs a tire. So there are always going to be tire ads in the newspaper.
Some Final Thoughts on Cash Flow
Don’t forget your emergency fund. Delayed shipments, slow payers, all contribute to reduced cash flow. Make sure you have some funds in reserve to handle these speed bumps that always seem to come up at the worst possible times. Good money management will go a long way to keeping your business healthy during an uncertain 2013.
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