In order to work properly, your business needs to burn cash on a daily basis. You need to pay for the office that you’re using (even if you own it, the upkeep and utilities are a significant issue on the list of operational expenses). You also need to pay your staff, pay for your supplies and much, much more. Now, just because you’re earning money on paper, this doesn’t mean that you have enough cash to cover all these needs. There is a difference between a net balance and cash flow and it’s a difference that can make or break your business. With that in mind and without further ado, here’s how you can enhance your business cash flow in order to keep your business operational.
Increase your efficiency
Making upright cuts is a slippery slope, which can end up in diminishing the efficiency of your enterprise. You can’t just hope to buy lower-quality supplies or start skimping on materials without any repercussions. In theory, such a thing would bring to lower operational costs but the damage would be felt elsewhere. The safest way to increase your cash flow would be to increase your efficiency, which would allow you to do the same amount of work with less effort. Completing the same project in a shorter time-period means paying fewer employee work hours for it, which is a direct saving.
Sell your invoices
Some companies raise a new loan in order to provide their business with some cash flow but there’s an alternative to this method. Invoices are funds that you are owed, the money that you’ve already earned but haven’t collected on just yet. So, why not dip into these funds when you’re in desperate need of cash. Factoring companies buy your invoices for a small fee. You get the majority of the invoice’s value right away (about 90 to 95 percent of it) and the rest (minus the 1,5 to 5 percent fee) after the factoring company has already collected on it.
Incentivize immediate payments
Another thing you can do is encourage your customers to pay upfront. Incentivizing immediate payments is not a simple thing but it can be done using several simple tricks. By paying on time, your customers will avoid late fees but you can also award them some points in your loyalty program. Apart from this, you can offer a discount for early payments. Overall, try putting yourself in their shoes and ask what they stand to gain from making a cash payment. This way, you can craft a system that works for everyone’s benefit.
Collect the debt that you’re owed
Forgiving a debt or postponing the collection because you don’t want to antagonize your customers is always a bad idea. First of all, it starts with the wrong presumption that it’s your money that they’re withholding. It’s not just your money that’s in question here. It’s also the paychecks of your employees, payments to your suppliers, the profit of your investors and the rent money for the premises that you’re leasing. They owe this money to you and you owe it to other parties. So, in order to avoid allowing this to ever become a problem, you need to consider hiring professional debt collection companies.
When it comes to pricing, there are so many strategies and there are a lot of entrepreneurs who believe that the only way to become more competitive is to lower prices. Alas, this is not necessarily the case. What you need to understand is that the higher price sometimes makes your products more appealing. This is due to the fact that a lot of people believe that higher price always reflects higher quality. This is one of the reasons why some luxury brands like Louis Vuitton never go on sale. They believe that this way, they devalue the brand as a whole.
By switching a part of your operations online, you can drastically reduce your overhead. For instance, by allowing people to work from home, you can save a small fortune on rent money. By selling things online, you can simplify your logistics. This is especially true for those who opt for the drop-shipping business model. Doing things online also means less commute for your staff, which is not only cost-reducing but also quite eco-friendly. All in all, it’s one of those rare win-win scenarios that you can’t afford to miss out on.
It all comes down to understanding when it’s safe to cut expenses and in which scenarios you might end up losing more than you save. The above-listed six tips should be your starting point, even though not all of these tips might be as applicable to your particular industry. What matters the most is that you’re systemic and that you always have a plan.