Smart Business Solutions for Increasing Cash-flow
Cash flow has been a top concern to most business owners. According to Capital One, cash flow continues to make small business owners spend sleepless nights. Though small businesses contribute highest to the economy of many countries, they often experience the largest cash shortage. A company can go broke while still making massive profits.
Cash is the king to any business. Your business might be making substantial profits throughout but to pay for bills, you must use cash. If you are making a lot of sales but have no money in the bank, you are outrightly insolvent. This scenario can happen if you are mostly making credit sales. Your business becomes hungry for cash while you need inputs to make output demands.
Thus, you become profitable on paper but lack cash. Nevertheless, you can forestall the cash crisis. Here are the best tips to increase business cash flow.
1. Cash-flow Prior Planning
Planning ahead can help you predict a cash flow crisis. Then, if you put the right contingency measure in place, you avert a cash flow crisis. By taking an adequate amount of time while planning out a budget for income and expenses, you ease yourself a lot of stress. You should implement what is called ‘Three-way cash flow.’ You forecast sales, purchases, and expenses.
Moreover, you can predict how this will affect the balance sheet and the net equity position. For instance, if you expect a substantial expense like a purchase of a plant, a previous budget can help you foresee any rooming cash crisis and have a prior plan to prevent it. Getting a clue of what will happen ahead will help you take preventive action.
You can approach your bank well before the foreseeable cash crunch and request for funding. You can explain the impending cash flow issue, why you expect it and how you plan to use the funds.
This step is as opposed to having to call your bank abruptly to beg for a quick short-loan or an overdraft. It helps avoid unnecessary costs for not having ample time to negotiate for better terms. Thus, you won’t be desperate for cash and so will seek favorable terms beneficial to the business. Planning, therefore, arms you with an idea of what lies ahead, triggers preparedness and equips you with confidence.
2. Use Favorable Credit Terms and Policies
Accounts receivables are one of the critical factors that impact the cash flows of any business. If your credit policies permit payment after a long duration, cash conversion cycles become longer. This can cause a negative cash flow to your business. You should not hesitate to take measures that encourage customers to pay early. Offer discounts terms like 2/10 net 30. It means a 2 percent discount for payment made within 30 days.
Customers will get encouraged to pay faster to enjoy the discount and reduce the amounts payable. Also, have invoices dispatched as soon as possible. The clock only starts ticking on payment when you issue an invoice. Institute robust collection processes that encourage faster payments. The more you have cash coming in on a daily basis, the better you stand to meet your obligations.
Moreover, multiple benefits tie with early collections. In addition to having customers pay early, you save on time and resources. You won’t have to continually remind customers to pay or confirm if payments have been received.
3. Fine Tuning Pricing of Your Products
Another likely cause of poor cash flow is low prices. You could be selling your products at too little prices. Consider selling them for more. You may be having the fear that your sales will suffer if you increase prices. Sure, this can be a possibility but don’t fast rash to this conclusion before testing. Increasing prices raises the perceived value of your products, and new customers may be inclined to purchase.
When your pricing is too affordable, your product won’t be taken seriously. However, if your pricing becomes too high, you may lose some business to competitors. Therefore, you must identify an average margin that helps to boost cash flow rather than cause loss of sales.
That’s not all; you should then articulate the increased value of your product. You don’t necessarily need to tell that you change something about your product. Have your sales force articulate why your product offers the best value compared to rivals. Communicate that the product provides most benefits to the customers.
4. Re-negotiate Long-term Contracts
If you have long terms contracts with suppliers and other service providers, re-negotiate for cost-efficient arrangements. Businesses of all sizes seek tools that make their operations run smoothly. Even small expenses matter if you are paying for dozens of them. Take the opportunity to re-negotiate for a bit longer periods of payment.
Approach those suppliers with whom you have established rapport. Getting more efficient terms with help your business a long way in maintaining good liquidity. Many of them will be willing to offer favorable terms if they know they can retain you for long. They will consider your request as an advantage as they won’t have to seek renewal of contract every month.
For the companies that decline your request, you can use this to your advantage. Particularly, if you discover some of these services are only extras that you longer need. You can consider canceling such contracts and improve cash flow.
5. Institute Better Marketing Strategies
Improving your marketing will ultimately bring more sales and hence better cash flow. The reason being, better marketing reduces cost per lead thereby enhancing your customers’ lifetime value. It also opens up new markets. If you are having difficulties winning credibility with customers, you should implement a content marketing initiative. You should aim to improve your conversions, educate your leads and boost the company image.
Moreover, if you are interested in up-selling, you could survey your customers to learn what product to create. This approach is the best to determine what should be your next offering.
Aim to conduct a regular review of your business to evaluate cash flow trends and predictions. Such an evaluation will help identify further opportunities for improvement. Implementing all above solutions where necessary will keep your business in a good liquidity position. You significantly improve your chances of sailing smoothly in the future.
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