My father once told me that when everyone you talk to offers the same advice, it's a good idea to listen. This statement has proven itself true throughout my lifetime and applies when you're looking to improve small business cash flow. While there's nothing wrong with thinking outside the box, you'll often see the same recommendations repeatedly suggested as you research cash flow improvement options. This is because these methods are tested and true. Put simply: they work, and you need to understand and utilize them.
Payables Late, Receivables Early
When you think about cash flow, it's important to emphasize "flow." Your cash is always moving, coming in the front door but out the back. You want to stem the tide and slow the flow out the back door, which you can do in several ways. If your vendors offer early payment discounts, take advantage of them. If they don't, use online banking and other fast electronic payment methods that let you pay close to the due date without paying late. This lets you hold onto your money as long as you can without paying late fees. Electronic payments also save postage.
You may also be able to save by buying certain items in bulk. Even if you don't need 50,000 tongue depressors, for example, splitting the cost of a bulk order with another local medical practice can benefit you from the savings of buying in bulk.
While slowing the pace at which your cash flows out, do what you can to get it coming in as fast as possible. Streamline your processes, so billing gets done quickly after each job or order, and give your customers multiple payment options so they can pay you easily. Consider offering a small discount for invoices paid within 5 or 10 days, shorten your net payment terms if you can, and don't be afraid to send past-due accounts to collection. Charge late fees and enforce them.
Lease Rather Than Buy
When you need equipment, a lease can look like a giant albatross hanging around your neck. Lease payments indeed feel like they go on forever, but leases have advantages regarding cash flow. For one, leasing means you don't have to shell out a large amount of money to buy expensive equipment or take out an interest-bearing loan to buy it. That means more money in your pocket.
A lease typically includes equipment repairs and maintenance as well. This means no cash flow surprises if a piece of equipment needs an expensive repair. Instead, a lease offers a predictable fixed cost that you can easily factor into your cash flow analysis and budget.
Pricing and Inventory
If you want to improve small business cash flow, you need to be proactive and ensure you don't fall into the "this is the way we've always done it" trap. Let's say, for example, that you own a candy store and have always stocked rock candy because it's one of your childhood favorites. However, you need to take a hard look at whether or not rock candy sells well. It may be the quintessential candy, but you need to nix it if your customers don't feel the same way. Neglecting to review inventory and periodically making necessary changes can crimp your cash flow.
The same is true of stale pricing. Again, you may be nostalgic for a time when rock candy only cost a nickel, but is that a realistic price in today's market? First and foremost, you need to make sure you're not losing money, of course. But you also need to try and maximize profits. You don't want to charge a dollar if the market will easily bear $1.50. Doing so is to slit your own cash flow throat. Don't be afraid to raise prices or experiment with pricing until you find the sweet spot.
Focus on Your Strengths
Don't forget that time is money when looking to improve your cash flow. Don't waste yours performing tasks you know you're not good at. Payroll, for instance, can be a time-consuming job. It may seem expensive to pay someone else to do it, but you need to consider what you could make from spending that time doing something else.
Let's say, for example, that you own a refrigerator repair company. Naturally, you started this company because you have extensive experience repairing refrigerators. You don't, however, know payroll well. A local payroll company will do your payroll for you, but they charge $150 per week. This may seem expensive, but is it? If it takes you two hours to get the payroll done, and you bill $100 per hour to fix refrigerators, you come out $50 ahead if you hire the payroll company.
Outsourcing can seem expensive at first glance, but doing everything yourself can be a sneaky way to reduce your cash flow without realizing it. There are many outsourcing services for small business, and utilizing some of them may boost your cash flow more than you think.
High-Interest Savings Accounts and LOC
If something happens and you do experience a temporary cash flow problem, your best strategy is to have a solution before you have the problem. Cash flow issues can be quite disruptive, so make sure you have some cash at the ready if you need it.
If you can, the best way to solve a cash flow problem is with your own money. Your business should be stashing some cash in a high-yield savings account. A high-interest account puts your money to work for you by earning more and keeps your cash fluid so you can get to it quickly if the need arises.
Another smart idea is to apply for a business line of credit. A line of credit establishes a ready pool of money you can draw on if and when you need it. A line of credit is a loan, and you will need to pay back any money you take with interest. But you don't pay unless and until you use the money, providing you with a ready supply of cash only if you need it. A line of credit can offer some wiggle room and peace of mind.
When it comes to growing your business and improving small business cash flow, you must use as many resources as possible, including an online marketing website that offers product and software solutions to help your small business grow. Savvy entrepreneurs leave no stone unturned when searching for new business ideas and creative solutions to business problems. We admire that indomitable spirit and stand ready to help your business. Reach out to us today to learn more about how we can help boost your sales.