If more money is going out of your business than coming in, then you have a negative cash flow. Sometimes this is because of external factors outside of your control, or it might be because of a sales trend or change in your operational costs.
Whatever the reason, you might be able to make adjustments to your business to help bring more money in.
Watch the following video and read on for tips to help you improve your cash flow.
Tips for improving your cash flow
Encourage customers to pay early
If you often find yourself waiting on payments from your customers, here are some strategies to encourage them to pay more quickly:
- Invoice straightaway and deliver products as soon as they’re ready.
- Give your customers a variety of payment options, such as credit card and direct deposit.
- Offer incentives like discounts for early payment, if you can afford to.
- Request a deposit for special or large orders.
- Regularly follow up on outstanding payments and debts.
- Have processes in place that allow you to quickly resolve customer disputes.
Manage staffing and cash flow
These changes to your staffing arrangements can save money on misplaced wages:
- Have flexible staffing arrangements and match the roster system to peak periods.
- Delay paying sales commission until after you’ve received payment from the customer.
- Reward staff behaviour that improves cash flow, such as reaching sales targets and reducing expenditure.
Manage your stock and suppliers
You don’t want to be paying suppliers for stock you aren’t moving. Try to balance the income you get from customers with the expenses you have to pay for stock:
- Replace slow-moving and obsolete stock with stock that has a faster turnover.
- Monitor stock levels and have processes in place to identify when you need to order new stock.
- Find suppliers who’ll provide you with stock only when you need it. A ‘just in time’ ordering system means you won’t waste money paying for stock that’s sitting in storage.
- If your terms of trade allow you extra time to pay once goods are delivered, make full use of this time. It equates to an interest free loan.
Consider your other assets and investments
Sell unnecessary assets
Many business accumulate assets they no longer require. Selling unnecessary assets increases cash in the business and saves on costs, such as insurance and storage.
If you need new assets, consider leasing to ‘smooth’ out cash flow if appropriate.
Invest surplus cash
Use interest bearing bank accounts for any surplus cash your business may have.
Refine your marketing strategy
Enhancing your marketing activities can help bring in more money through sales.
Focus on your target market
A more focused target market results in less marketing expenditure. It can also provide your potential customers with clarity over your business and a better sense of what you’re offering.
Understand what the customer wants
Familiarise yourself with what problem your product or service solves for your customer. The more you know about what the customer wants, the easier it will be to meet their needs.
Measure your marketing results
Find out where your customers are coming from. Are they hearing about you from Facebook advertising, Google searches or somewhere else?
If you know where your customers are coming from, you can stop spending money on the tools that aren’t as effective.
Improve your online presence
Invest in online marketing if you haven’t already. Many websites are developed with information of the business and not much else. You need to entice the customer to buy, so there needs to be some ‘hook’ or ‘call to action’ for them to contact your business.
Keep your marketing regular and your business’s website and social media accounts up to date. Create a calendar for social media posts and newsletters and stick to it.If you know how to reach your customers and understand their buying habits, you can develop marketing activities to encourage repeat business.
Bundle your sales
Follow up on every enquiry and answer every phone call.
Research suggests that 45% of all enquiries are converted into a sale. If you’re not achieving this benchmark, put processes in place to make the sale.
If you’re struggling to field phone enquiries, consider these questions:
- If customers are regularly asking similar questions, could you make this information easier to find on your website or social pages?
- Do you have an email address or web contact form as an alternative contact method for less urgent enquiries?
- Do you need to hire someone to help keep up with demand?
Forecast your cash flow
Monitor your sales trends and upcoming expenses, and prepare regular cash flow forecasts to identify potential cash flow shortages in the near future.
Once you’ve prepared a cash flow forecast, run ‘what if’ scenarios to measure how prepared your cash flow will be to certain changes in events, such as decreases in sales.
Source: Business Victoria