By Ben Kinsey, CPA
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Now that everybody is up to their necks preparing their yearly taxes, I thought I’d take the time to help you take the steps to improve your business cash-flow in 2019. Cash-flow is like the old Mark Twain ditty that goes, “Everybody talks about the weather, but nobody does anything about it.” By that I mean, most business owners are always asking CPA’s like me to give them tips on how to improve their cash-flow. Then they rail at the advice, since it usually requires them to take the time to assess their policies and procedures, as well as changing some of the ways that they do business. Below is a list of 10 ways to improve your business’ cash-flow:
1. Streamline your invoicing – The single most important thing a business owner can do to keep their business off the rocks is to make sure their clients pay them in a timely manner. Sometimes this means using automation to make sure every client gets billed on time every month. Other times, a business may need to adjust the types of payment it accepts or the terms it offers clients. Last but not least, it necessitates identifying slow paying customers and coming up with a strategy that penalizes them if they pay late. When it comes to accounts receivable, failure is not an option if you want to keep your business in business.
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2. Offer cash discounts – If you see an imminent cash crunch approaching, don’t panic. Get creative. One way to generate additional cash is to offer existing customers or new prospects a discount if they pay in advance. While you may wind up giving up 10% over the life of the contract, generating a lump sum payment instead of having to wait months to get paid can definitely help you avoid red ink that you will have to make up by tapping your credit line.
3. Consider leasing – While leasing can sometimes prove costlier than purchasing, if used with discretion, it can improve cash-flow by allowing you to make small payments instead of having to come up with a lump sum. Since lease payments are also considered a business expense, you’ll get to write them off. You will also save on sales tax when you lease. This can add up to substantial savings on larger purchases such as vehicles or expensive office equipment.
4. Renegotiate contracts with vendors – Here’s another area that can mean a substantial reversal of fortunes. If accounts payables are eating your lunch, it’s time to talk to your vendors to see if you can renegotiate a better deal. Like you, vendors don’t want to lose customers, particularly those that pay promptly and have been buying from them for years. This gives you some leverage which can be used to reduce the payments you make for goods and services. (Also consider asking for a discount if you pay up front.)
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5. Reduce your inventory – Assess your inventory to determine what products move and which sit on the shelves. Rather than tying up your money on products that do little more than gather dust, consider selling them in bulk to make way for inventory that moves off the shelves. Above all, never get emotionally attached to any product. This is one check your ego can write that your body can’t cash.
6. Eliminate the dead wood – This tactic can mean everything from reducing expenditures for non-essential items, to laying off unnecessary personnel. The secret to eliminating the dead wood is identifying what and who is necessary to the success of your business and what’s not. From a supply-side standpoint, look hard at the things your company spends money on monthly. Do you really need all those magazines that needlessly clutter up your waiting room? Is there a more cost-effective inkjet printer on the market that won’t eat your lunch when it comes to consumables? How often and how much do you spend to entertain clients? Reducing or eliminating waste is one of the most efficient ways to improve cash-flow. So too is reducing the workforce. While most employers hate to admit it, many of their full-time staffers can be outsourced for far less. Perhaps it’s also time to talk some of the employees who’ve been with the firm for years into retiring. The bottom line is a reduction in payroll is one of the fastest ways to improve cash-flow.
7. Increase your prices – If you want to increase cash-flow, think of increasing your prices. Even a bump of as little as 5-10% could make a huge difference in profitability. If a customer balks at the increase, you can always offer to give them a discount if they pay in advance. You can also offer value-added benefits that will help you sell the increase. What you may find is that few if any of your customers balk at the increase, which should tell you that you’ve been selling yourself short for quite some time.
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8. Pool your resources –A co-op is another way to increase your busying power without having to spend one extra dime. Everything from goods and services to advertising and marketing expenses can be reduced if you have more buying power. By pooling your resources with other non-competing businesses, you could find yourself saving 10-20% over going it alone.
9. Recycle your customers – The two hardest things for any business to do is acquire new customers and keep existing ones. The problem is most small businesses don’t realize that the best way to improve cash-flow and profitability is by going back to the well. Just as with invoicing, the most efficient way to resell and upsell customers is to create an automated system that keeps your firm top of mind and reaches out to them without running you and your staff to ground. One of the most cost-effective ways to do this is to publish a weekly blog and a monthly or quarterly newsletter. If you don’t take the time to keep your clients in the loop, what’s to keep them from jumping ship?
10. Incentivize your sales force – If sales are languishing or it’s a traditionally slow time of year to sell your wares, you should consider creating a contest for your sales force that lights a fire under them to go the extra distance. You’d be surprised at the effort a sales rep will make to win a tablet PC or a weekend cruise that costs you little to procure. Offering a contest to your customers can be another way to produce more sales when the going gets tough. Either way, the real winner will be your business.
The beauty of having ten tactics for improving cash-flow is you can pick and choose the ones that work best for you. If you’re still reluctant to change your ways, let me leave you with one last quote from the late, great Samuel Clemons:
Ben Kinsey, CPA of Small Business Group works with owners of closely held corporations in the Northeast Florida region. If you work in the North Florida area, we offer a FREE initial Consultation at our office, please contact Small Business Group if you would like to know more about strategies for your business.