Cash is the lifeblood of your business. It enables you to pay the bills and keeps your business operational.
At times, cash can run short and jeopardize the viability of any business. And it’s not always due to poor sales. You may be in an expansion phase, and need additional cash reserves to pay for new equipment, staff, and infrastructure that current profit won’t cover.
Here are some strategies to keep your business cash positive, and ensure that it remains viable:
Shorten your cash cycle
This is the time it takes from completing the work, to getting paid. The shorter the time, the faster the cash comes into your business. The best-case scenario is to get paid immediately.
However, when selling any B2B product or service, you’ll usually invoice and then wait for payment.
You should:
- Try and get paid immediately by generating an invoice straight after a job has been completed so your customers can pay on the spot. It means you’re not waiting untill the end of the month for the cash to show up in your account.
- If you still need to invoice, do it early. Don’t wait for the end of the month. Provide incentives to your customers to encourage them to pay early, such as discounts for early payment.
When you shorten your cash cycle, you reduce the time between completing work and receiving payment – helping to ensure a steady cash influx and reduce financial strain on your business.
Request progress payments
When negotiating new contracts with customers, consider establishing payment terms that help your cashflow – such as requiring deposits or progress payments.
- Ask for pre-payments or progress payments for contracts that take a long time to complete.
- Include a regular timetable for customers to settle invoices as part of any agreement.
- Agree on clear milestones for the work to be completed to reduce the chance of the customer disputing any invoices.
Cut unnecessary costs
There will inevitably be expenses in your business that you could do without, and now is the perfect time to see what you can cut. Audit your expenses to identify costs you no longer need or could negotiate better terms on, such as:
- Subscriptions to software you no longer use that cost you money each month
- Fixed-service plans that you could switch to a lower rate if you don’t need all the functionality
- Excess inventory that you’re either paying money to store, or that you could sell without replacing
- Ineffective advertising costs if you’re unsure whether they relate directly to sales
- Anything you’re contracting out that you or your existing staff could do, such as cleaning, marketing, warehousing
Go through your last few months of invoices and credit card statements (yours and your employees) to see what could be eliminated entirely or reduced to save money.
Improve your margin
Two of the best ways to generate a better margin are to:
- Lower your costs. Regularly compare your budget with actual cost figures and frequently check the pricing offered by alternative suppliers. Make a note to re-negotiate costs with major suppliers yearly, and be aware how smaller costs can either slowly creep up over time – and that there are better deals to be had.
- Increase pricing where you can. It can be a bit scary to consider raising prices, but only if you assume your target market is price sensitive and your only goal is to be a price leader. Market research will help you work out the actual price tolerance the target market has for your product or service and what their alternative choices are.
Delay Payments
Don’t avoid your creditors. Be upfront with them and work with them to figure out ways to pay your debts more easily. In most cases they’ll do what they can to help you, just as you would if one of your customers had trouble in paying by the deadline, such as:
- Agreeing a repayment schedule over a longer period
- Allowing you to pay monthly retainers or part payments as you go
Reduce the chance of bad debts
Offering credit is often convenient and can help you to retain your best clients, but make sure you minimize the potential hassles and risks that can go with it:
- Always have customers sign your credit policy. It doesn’t matter how trustworthy you think your customers are, they still need to sign on the dotted line so that your terms and conditions are agreed to by both parties.
- Have minimum and maximum credit terms.
- Be aware of how to reduce the risk of fraud.
- Set up a debt management calendar and keep on top of debtors with repeat meetings and reminders.
- Use accounting software to red flag late payers and follow up immediately. Pay close attention to large outstanding invoices as they draw near, and keep your ear to the ground about the financial health of your customers.
Next steps
• Complete a cashflow forecast to determine how much time you have left until you’ve run out. Use this time to act.
• Make sure your invoicing systems are efficient and that there are minimal bad debts.
• Charge deposits or progress payments on your work.
• Focus on sales and marketing to tip more cash into the top of your funnel.
Improving cashflow is essential to maintaining a healthy and sustainable business. Taking proactive steps to manage cashflow will help safeguard your business’s future and position it for long term success. Talk to us about additional funding to get through a cashflow crunch.
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This content is for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. You should consult your own professional advisor for specific financial, investment, and/or tax advice tailored to your needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
