How’s business? For most companies, the answer changes by the month. After all, fewbusinesses maintain consistent revenue throughout the year. But if you’re consistentlystruggling to pay the bills, you likely have a problem with cash flow, or moving cash andcash equivalents in and out of your business. Here are 13 tips for solving your cash flowproblems.
Use a Monthly Business Budget
If your business is seasonal or cash flow tends to follow a cycle, an annual budgetand accurate cash flow statement can shed light on just how muchmoney you’ll need each month to pay recurring bills. You’ll need to save money fromthe high-revenue months to cover overhead during lower-revenue months. A monthlycash flow forecast can reveal potential shortfalls and give you time to seek extracash if needed.
Access a Line of Credit
If you have limited cash flow, one solution is to set up a line of credit. Like witha credit card, you’ll have money to spend that you can pay back during better monthsin your business cycle. Unlike a term loan, you’ll only pay what you use, along withinterest on the outstanding balance. Best of all, once you’ve paid it off, your lineof credit replenishes and is available again when and if you need it.
Invoice Promptly to Reduce Days Sales Outstanding
While your business may offer clients 30– to 60-day payment terms, you may need themoney sooner in order to pay bills, order inventory, etc. In this case, you can’tafford to wait for the payment deadline. One solution is to offer your clients a discount inexchange for earlier payment. Alternatively, you could use invoice factoring. Thisfinancial product enables businesses to sell accounts receivable at a discount toa third-party factoring company. The factoring company advances up to 90% of theinvoice upfront and takes responsibility for collecting payments.
Stretch Out Payables
Extending the payment cycle of your suppliers is a common way to obtain cheapfinancing. With this strategy, you simply choose to pay certain bills past their duedate. However, it’s not a long-term solution, as it can impact your credit and sullyyour relationship with suppliers.
There are two ways you can protect yourself should you decide to stretch outpayables. For one, you can negotiate the due date to a date on which you areconfident you can pay. Or, you might want to reconsider your payment agreementaltogether. Some service providers will allow for annual or semi-annual paymentsinstead of monthly. Paying annually upfront might even net you a discount.
Reduce Expenses
Is overspending putting you in the hole? Many businesses approach this problem bycutting the largest expenses, such as inventory, marketing or labour, first. That’s a mistake, asthese are typically core to business operations. Instead, consider cuttingnonessential costs such as landscaping or housekeeping first. Then, audit youroverhead expenses, including rent and utilities. See where you can cut back, getbetter rates or renegotiate contracts.
Raise Prices
Selling products or services at too low a price can negatively impact your margins.Take a step back and audit your products and services to determine the fully loadedcost of delivering them. With that cost in hand, you can determine whether you arecharging too little and hurting your bottom line.
While many businesses balk at the idea of raising prices and potentially alienatingcustomers, research shows customers are more likely to accept a price increase if itcomes with an improved experience. According to Price Waterhouse Cooper, 43% ofconsumers would pay more for greater convenience, and 42% would pay more for afriendly, welcoming interaction in-store. It pays to test things out for bestresults.
Start with your top sellers or those that have less competition in the marketplace.If it doesn’t hurt sales, you can go ahead and roll out increases across the rest ofyour product line.
Upsell and Cross-sell
Increasing sales is an easy way to boost your cash flow. It’s even easier when you’reselling to customers who are already fans of your products or services. Two classicapproaches: upselling, or selling upgraded and more expensive products or servicesto the same customer, and cross-selling, or finding ways to sell different productsand services to the same customer. For example, a gym might consider upselling asix-week training package with a new membership deal. And ecommerce sites oftencross-sell their customers under the header "You might also like...”.
Both techniques hinge upon making the sales pitch natural, or not making the customerfeel pressured. Your goal is to keep existing customers happy and buying yourproducts or services.
Accept Credit Cards
Accepting credit cards translates to quicker payments and fewer bad debts. It alsoimproves the likelihood of purchases. A Square survey reported that 35% ofconsumers would shop elsewhere if a business didn’t accept credit cards. However,credit card companies typically charge a fee to merchants that use their service, soyou’ll need to weigh those costs against the benefits of quicker payments.
Some 90% of small businesses accept credit cards, according to a 2019 Bank of America survey. The same survey showed thatmore than half of customers use credit cards in person or online when buying goodsor services from a small business.
Accept Online Payments
Just like credit cards, an online payment option—and an ecommerce shop ingeneral—makes shopping more convenient for your customers. It also can help you moveinventory more efficiently. Take, for example, a walk-in bakery business. There’slittle control over how many pastries it sells or throws out on a given day. If thatsame business moves ordering online, it can save money on its storefront, bake toorder, and perhaps even ship nationwide.
Maintain a Clear View of Inventory
If you’ve got a product-based business, you know that you need to keep tabs on howmuch merchandise is on-hand. If you don’t have a clear sense of how much inventory you have at anygiven time, you run the risk of overstocking, thereby creating waste and tying upcash flow in that stored stock. Consider investing in an inventory management system thatintegrates with your accounting software. That way, you’ll maintain a real-time viewof how much stock you have on-hand, how much you paid for each product, how much youactually need at any given time and more.
Cut Costs by Identifying Waste
Are you adding unnecessary materials like tissue paper and branded bags to yourproducts? It may be time to slim down your packaging. Are certain products movingslower than others? Consider phasing out and focusing on your top-selling productsinstead. Are payroll costs becoming a drain? Consider cutting overtime and excessstaffing as much as possible.
Improve Profit Margins with Vendor Discounts
If you’re a good customer, your vendors may be more than happy to cut you a break.Or, they may throw in perks such as free shipping or extra products, especially ifyou’re buying in bulk.
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Improve invoicing
Are you on top of your invoicing? The more promptly you send out invoices, the quicker you’ll getpaid. And, in turn, you’ll benefit from healthier cash flow. If invoicing isconsistently lagging, it may be time to invest in accountingmanagement software. The best accounting software helps you ensure accurate,timely invoices while avoiding potential errors from manual bookkeeping. You’ll havea dashboard with a real-time view of all transactions and an electronic trail of allrelated records, which will come in handy when it’s time for auditing.
