In a perfect world (or at least a perfect economy), your business’ cash would flow as fast as water from a fire hydrant, and as smooth and consistent as one of those lazy rivers you can float down at water parks. Even for the superstar corporations like Apple, Walmart and Starbucks, “fast and smooth” is rarely how they would describe their cash flow, but that is still what they aim for.
There are no magical remedies or quick fixes to improve your business’ cash flow. It takes risky but careful strategies and lots of effort. Businesses owners have to change themselves and their companies, and not blame anyone else for their failing to take advantage of any of these tips. If you are ready to take the next best step for your business, take some advice:
Tip #1 Analyze the Past and Predict the Future
It is cliché but true that you will not know where you are going until you look at where you have been. When a business looks back at their failures and successes, it inevitably realizes that changes need to be made. If you do not have careful statistics about your cash flow, it is time to make some, estimate some, or begin to take a count of everything on a daily, weekly, monthly, and quarterly basis. Business works in cycles. Money ebbs and flows, so you need to see when that happens. One extreme example is a store that sells Christmas ornaments. From January to October it would get almost zero business. Come the holiday season around November and December (or August, for some families!), it would make so much income that it sustains them for a whole other year (at least they hope so).
Ideally you should be familiar enough with your customers’ needs and the typical ups and downs of the economy that you can forecast when you will or will not have smooth or increased cash flow. You might need to get a loan or borrow funds from your savings during the slow season. Slow periods are also good times to really step up your marketing. When you know a busy season is coming up, that is when you should plan to hire more employees and give your existing ones their bonuses jor other gift incentives.
Tip #2 Re – Think Your Policies
If you do not require deposits for large orders, or custom orders, now is the time to change that policy. When you create a product or deliver a service, that is cash leaving your pocket. If too much goes out and is not replaced in a short period of time then you might not be able to give it to your next customer.
Too much cash goes out with the order for so little to come back in so slowly.
You also must enforce your payment deadlines. Require interest or charge one – time penalties for customers who do not pay in a timely manner. When the relationship gets stronger, that could be a time to be more lenient, but like with a child, you have to lay the law down clear and strong at first. If a customer is used to paying in ninety days, trim that down to sixty. If they are used to sixty, then require thirty. The faster you can get the cash back, the faster you can make more product and, of course, get more profit.
Tip #3 Provide Incentives for Your Customers
Do not just get the usual money at a faster speed – get more customers to spend more money. There are a number of different types of incentives to attract more customers. Let’s focus on two: discounts, and limited – time sales.
If you do not already have a customer rewards program and coupons, you should, no matter how small your business is. You do not need to invest a ton of money into creating some overly complicated point system with reward cards that hang from keychains. Simple paper punch out cards that gives coupons and discounts to someone for being a return customer is enough to increase the cash flow a little.
Coupons are not for you? Try in – store sales. You might not get the full price you wanted for one product, but moving fifty of it quickly can make up for the loss in the long run.
Tip #4 Adjust the Speed of Your Cash Flow Processes
Three processes make a big difference in how fast cash flows into your business: how speedy your sales turn into liquid cash, how quickly invoices are sent to customers, and the speed of terms of payment (as referenced above). You want your liquid cash to be easily accessible. Avoid long term CDs, penalties, and put your money in high interest savings or checking accounts. Require your staff to send out invoices the very same day that they are approved. You won’t get paid if the customer never gets the invoice!
Tip #5 Improve Your Quality Control and Customer Service
Nothing interrupts a smooth flow of cash than having to refund a customer’s money and mend the relationship. Improving your quality control will cut down on unsatisfied customers and improving your customer service will bring dissatisfied customers back to your side. Cash flows quicker when customers are not only satisfied, but they return.
To continue with the water park metaphor, traditionally cash flow is more like a wave pool. Sometimes the water is calm, and sometimes, often without warning, suddenly there are waves. The most important step a business can make is to take advantage of the calm waters so that it can survive the waves! Tip number six is to apply tips one through five in your business today!
