Being in business is all about keeping cash flowing through your business, hence the term ‘cash flow’. No matter how profitable your product is, unless cash is coming in as regularly as money flows out, your business won’t survive.
Here are five areas you can look at to improve your cash flow.
Offer alternative pricing models
Setting the right pricing for your product can be challenging. You don’t want to price too low, as it could make you look cheap, but at the same time, price too high and customer won’t be able to afford you. However, even if you believe you’ve got it just right, there are things you can do to boost revenue further by adapting your sales/pricing model.
Depending on your offerings, some customers might require a different type of product, or prefer to pay in a different way, by monthly subscription, for instance. By giving your customers different payment options – such as pre-payments, fixed monthly or specific date payments, you have more visibility over your cash flow.
It’s up to you to decide how you can do that depending on your range of products or services.
Early payments vs late payments
Another way you can use payments to improve cash flow is by creating incentives for customers to pay on time, in advance or even by deposit. Likewise, you can create financial penalties for those that pay late.
Applying a discount for customers that pay on time can help your budget and forecast more accurately, and, of course, keeps money coming in regularly to keep the business ticking over smoothly. An added bonus is when customers pay on time, you spend less time and money on credit control.
Invoice on time
Just as important as credit control is making sure invoices go out promptly. The sooner the invoice goes out, the sooner it will get paid (or if it doesn’t, credit control can get on the job sooner).
It’s a good idea to invest in a system that automates it for you, so the invoice gets sent with the goods or when the job is complete. After all, any technology that makes it easier for you to manage your business finances, get paid and manage cash flow can help you free up time and resources. Research what’s out there that meets the needs of your business.
Lease instead of buying
Old equipment can let you down, failing into disrepair or becoming dated and unfit for purpose. Expensive, unexpected repairs and replacements can seriously affect your cash flow if you don’t have a sinking fund for such emergencies. One alternative is to consider leasing some of the equipment you need to do business. By doing so, you know exactly how much your operating costs are each month and you won’t have a nasty surprise when it comes to replacing an essential piece of equipment. What’s more, most leasing companies will let you upgrade as necessary, so you can stay up to date and work more efficiently with the most modern business equipment.
Optimise your cash flow
Once you start to focus on improving cash flow, you’ll quickly see the difference it can make and will want to do more. One way of doing this is by creating a cash flow forecast that allows you to plan for the year ahead. This type of budget will help you plan for big expenses such as new equipment, the rise and fall of business associated with seasonal demand and ensure the cash is there to meet your tax liabilities when that dreaded time of year comes round. It can even predict when you may need to look for additional funding.
If you are experiencing cash flow problems, it might be time to step back and look at your business objectively, where things are going wrong and where you can make alterations by putting some of these tips into action. By doing so, you should see significant improvements in a relatively short timeframe.