While there are several metrics you can use to determine the health of your business, cash flow is the most important. Positive cash flow is critical for growth, as it indicates that spending is under control, while negative cash flow indicates you don’t have enough coming in or you have too much going out. How can you improve your cash flow?
There are two things you can do:
- Increase revenue
- Decrease expenses
Though this seems simple, the challenging part is to create strategies that will help you reach your goal. The best way to get started on improving your cash flow is to examine operational expenses, accounts payable, marketing/sales efforts, and payment practices. In this article, we’ll explain steps you can take to improve your cash flow.
Operational Expenses
While income is important, expenses can also impact cash flow. Take the time to evaluate your operating expenses to ensure they are in check. You may also want to improve inventory management to cut costs.
Work with vendors/suppliers
Inventory and operational goods/services offered by suppliers and vendors are essential. If you’re not taking the time to explore and question them, you may be spending more than you need to. If you have a long-term, healthy relationship with your vendors/suppliers, try working with them to negotiate pricing, credit terms, and discounts- which can reduce costs.
Re-evaluate your spending
Take the time to evaluate what you’re spending and determine if you can cut some of those items out. Over time, expenses add up. You need to take the time to re-evaluate your cash flow. Of course, it’s easy to overlook trivial expenses, but they can leave you paying hundreds or more in unnecessary expenses. Closely look at what you’re spending and determine where you can make cuts.
Improve your efficiency
This can refer to how you schedule your workforce to how you use your utilities. The new year is a great time to look at ways to cut back without harming your sales/revenue. Find ways to increase your efficiency by using smart tech to control heating/cooling, use automated business software, and use efficient equipment. This will allow you to reduce wages, utility expenses, and inventory costs.
While there are several metrics you can use to determine the health of your business, cash flow is the most important. Positive cash flow is critical for growth, as it indicates that spending is under control, while negative cash flow indicates you don’t have enough coming in or you have too much going out. How can you improve your cash flow?
There are two things you can do:
- Increase revenue
- Decrease expenses
Though this seems simple, the challenging part is to create strategies that will help you reach your goal. The best way to get started on improving your cash flow is to examine operational expenses, accounts payable, marketing/sales efforts, and payment practices. In this article, we’ll explain steps you can take to improve your cash flow.
Operational Expenses
While income is important, expenses can also impact cash flow. Take the time to evaluate your operating expenses to ensure they are in check. You may also want to improve inventory management to cut costs.
Work with vendors/suppliers
Inventory and operational goods/services offered by suppliers and vendors are essential. If you’re not taking the time to explore and question them, you may be spending more than you need to. If you have a long-term, healthy relationship with your vendors/suppliers, try working with them to negotiate pricing, credit terms, and discounts- which can reduce costs.
Re-evaluate your spending
Take the time to evaluate what you’re spending and determine if you can cut some of those items out. Over time, expenses add up. You need to take the time to re-evaluate your cash flow. Of course, it’s easy to overlook trivial expenses, but they can leave you paying hundreds or more in unnecessary expenses. Closely look at what you’re spending and determine where you can make cuts.
Improve your efficiency
This can refer to how you schedule your workforce to how you use your utilities. The new year is a great time to look at ways to cut back without harming your sales/revenue. Find ways to increase your efficiency by using smart tech to control heating/cooling, use automated business software, and use efficient equipment. This will allow you to reduce wages, utility expenses, and inventory costs.
Standardize billing process
When you’re busy with other things, it’s easy to forget about some operational tasks- but don’t allow invoicing to be one. Make sure that you are sending out invoices on time and keeping your due dates consistent. This will set clear expectations of the financial agreement between you and your clients, as well as help you meet your financial goals. You may also set up credit card/online payments to make it easier and if possible, offer incentives to customers who pay upfront/early.
Make payments easier
If you are currently only accepting 1 or 2 types of payment, such as cash and/or credit/debit payments, you may want to consider adding more to accommodate your clients and customers. You may want to consider offering online payment options or set up an auto-deduct option to benefit cash flow.
Use invoicing/accounting software
Invoicing and accounting software can make the process of invoicing easier by increasing speed and regularity. In most cases, this will not require new equipment, though new point-of-sale equipment may help.
Incentives/Penalties
Just because you send an invoice does not mean that you will get paid, and cash flow issues are often due to a lack of payment. Therefore, you may want to implement some new payment policies. This may mean offering incentives to customers who pay early or on time. On the other hand, if customers are not paying, you may want to add a penalty or late fee on their payments. You may even want to set up a system for collections. This will encourage your clients to make your bill a priority. If customers still don’t pay, consider debt collection services. If you decide to add incentives or penalties, make sure you provide your customers with adequate notice.
Use invoice factoring
If you are still unable to collect, invoice factoring may be a good option. This is the process of selling unpaid invoices to a finance company. The finance company will advance you 80% to 85% of the invoice and they will collect from the client. Once the client pays, the finance company will pay you the remaining 15% to 20%, minus fees. This is not a long-term solution, but it can temporarily help with cash flow.
Upgrade Marketing/Sales Efforts
In some cases, it’s not that your customers are not paying, but your pricing and the fact that you don’t have a very large customer base. Taking the time to review your pricing and marketing efforts can improve cash flow and increase market share.
Review pricing practices
If your clients are paying on time or your cash flow isn’t dependent on invoicing, your pricing may be outdated or inefficient. Are your prices so high that you’re losing business to your competitors or are you undercharging? There are several reasons that your pricing may not be efficient but before overhauling your pricing, review the factors and how they’ve changed, considering manpower/wages, vendor/equipment/supplier fees, and competitor pricing.
Evaluate marketing efforts
If you’re primarily relying on email marketing but not really seeing results or you have ignored your social media account, you may want to evaluate your efforts. In some cases, marketing becomes predictable and no longer excites your customers. Take some time to evaluate your efforts and determine where you can make changes.
Identify/target new markets
In some cases, you may just need to do some brainstorming to come up with ways to market your product/service to new consumers. On the other hand, you may need to do some engage in consumer research and look at the efforts your competitors are potential competitors are using. One of the best ways to identify/target new markets is via social media. This puts your brand and products/services in front of more potential customers and engages with them.
Consider online selling
If you are a physical store with a small online presence, it makes sense to increase your presence on platforms such as Shopify or Etsy. However, you will want to evaluate the costs associated because while it may increase your cash flow, it may also negatively impact your bottom line.
Conclusion
There is no single answer to improving cash flow. In most cases, it’s a combination of several things. Take the time to evaluate your operational expenses, how you get paid, and your marketing/sales efforts. If you need help, contact Commercial One Group.