How to improve Cash flow in my business?
Positive Cashflow is crucial for the survival of a business.
Here are some tips to help you improve on your cashflow!
1. Managing the timing of goods and payment.
Important Things to consider
When do you receive money from your customers? ( For example 30/60 day turnaround, deposit before the job/service/production and 80% on finished date or on delivery )
When do you pay your suppliers? ( Once a month or beginning or end of the month)
How long do you keep stock on the floor before you have to have promotion.
Increase Sales/ Revenue
Add on Services
When selling an item try to think of a way they can purchase an extra item to generate that extra sale. Such as buying a bike then you can have an add on such as a helmet. If you sell websites or graphics you can have an add on service such as website maintenance. Every service can have an add- on product.
Switching the business model where you can get recurrent sales or lock down the client for a monthly subscription.
For example instead of selling an item such as a car or apartment, you could switch it to leasing that way you can earn a monthly income. This can work with products and services as well.
Offer Packages at better prices.
This can lock down the customer to pay more upfront and lock them in to come back every few weeks for the service. For example , If you own a cleaning service you could charge a monthly fee for 5 cleans a month at a discounted price as opposed to 1 clean and hope that the client will call again. Another example is a car wash , if you purchase more washes, it seems better value that way you lock the customer in to paying more and most of the time they don't use up all their quota.
One thing to be careful of, when doing this you need to make sure you know how much profit you make and that your discounts won't actually put you in a loss. If you discount a certain amount you may need to double the number of units to sell to maintain the same level of profit.
Same with housing prices and rentals, goods and services should also increase its prices from year to year. This is inflation. Make sure you review your prices every few months and decide if you need to increase the price.
Shortening the production time frame while maintaining price and value.
If you are producing goods try to push suppliers or manufacturers to produce in a shorter time frame.
If you are a serviced based industry try cutting labour hours.
Think of ways to improve efficiency to deliver the same product.
2. Re- evaluate your business costs.
Where are you funds being drained?
- Office Supplies
Review all your sales and marketing costs. Are you spending too much on google ads? Are they generating enough leads? Are you hiring staff to do work that other staff can do.
Are you paying too much rent for an office location that can be moved to a cheaper area.
Could you have a home office and minimize that expensive entirely?
Hidden Costs/ Reduce overheads
Are there hidden costs draining your profit. ie. Freight - change shipping companies.
Motor vehicle costs , staff claims. Can you charge your customers some of these costs so you don't have to bare it , ie. customers can pay for shipping themselves.
Drop products that are not selling.
Why have a product line that is not selling. These items waste your time and shelf space , best to have a flash sale get rid of the items and focus on items that sell well.
Is everyone working efficiently? Perhaps change some of the staff from full time to casual this will reduce costs significantly .
Hire contractors who charge per job rate instead of hiring someone at an hourly rate.
Lower Your Rent
Try contacting your real estate agent or landlord to see if you can get a better deal. Lowering rental costs can help dramatically.
A lot of companies make the mistake of overspending on food, cars, transport, stationery and rental, all with the false impression that you can deduct it all from your taxes. That is a big misconception, and it's very important you get correct tax advice from your accountant before you go on a spending spree.
Implementing Easy payment software
Paypal and online payment systems have made life so much easier for customers to purchase items. In such a fast paced society, customers don't have time to waste, if you can minimize their time as much as possible to purchase something then do it!
Review your Debtors ( clients that owe you )
Make sure you call or email your debtors every week to get money in . Don't give people the impression that your business isn't on top of things then they will get lazy with payments too.
Send Invoices Out immediately
As soon as an order comes in , make sure you send out an invoice as soon as possible. Billing in advance is even better. Soon enough this will become a habit, or try to have it as your company policy by writing it in the fine print. Such as 20% deposit before production, and 80% on delivery.
3. Minimizing the money that you owe
Loans - Are you paying a tonne of interest every month? Contact your broker or bank to review your financing options. Can you lower the interest or refinance?
Tax Commitments - Don't forget to pay your taxes or set up a tax plan to put aside money so you can pay tax . Being late on tax payments can affect your credit rating significantly!
First place to start when it comes to increasing cash flow is take a look at your own spending.
Cut down on your personal salary in order to support the business.
Talk to your financial planner and review all your personal expenses such as insurance, can you switch to a cheaper insurer or change your phone plans.
This is all just the beginning to improving cashflow. Get more tailored advice from professionals, we can help you improve your cashflow and set your business up for success.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.
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