You’ve done it! You’re in business, and now the sky’s the limit, right? It could be – but which metrics should you measure? Your profits? Revenues? New sales? Well, it’s not exactly that easy. While it’s definitely a good idea to monitor what you have coming in and going out, if you don’t keep an eye on your cash flow, you could be over your head before you realize you’re heading for the deep end.
When it’s time to learn how to increase cash flow in your small business, and how to maintain it during your company’s growth spurts, these suggestions should help. They fall into seven major aspects of your company as a whole:
- Business structure
- Payment methods you accept
- How you negotiate
- Offering subscriptions
- Settling debts
Before tackling these, though, the best suggestion of all is: Don’t spend your money. Cutting expenses seems simple to say but hard to do, right? Especially if you think of it in terms of how fast your money can go compared to how long it takes to earn in most cases. And if you’re in the opening stages of business, you first have to learn how to earn money – and fast. In fact, as soon as you learn how to make money by simply putting in some time and controlling your short-term cash flow, your earnings can grow into an actual budget that allows you to spend where necessary.
Improving Cash Flow Through Sales
One of the fastest ways to bring in immediate cash flow is to have a sale. Mark down your products or services – but not for an extended period of time. This causes your current customers to purchase more than they usually do, and brings in potential customers to see what you offer that might be of value to them. But don’t markdown your wares so much you can’t make a profit – find a middle ground where both you and your customers see a winning scenario. An upside to having a sale is that you also clear your inventory, giving you the opportunity to restock with products that turn over more quickly, keeping your cash flow healthy. If you end up with products you can’t unload via a sale, consider checking in with a “seconds” dealer to clear excess inventory in one bulk deal that puts cash in your pocket quickly.
Cross-selling and up-selling are other ways to bring in sales right away, because the easiest people to sell to are your current customers. They already know and trust you and enjoy working with you. Instead of focusing a lot of time on trying to be marketable to new customers, upsell your current ones. You can either focus on selling greater quantities of your current offerings, or selling related products and services that complement one another. Working cross-selling opportunities into your marketing campaigns is often effective, so look for ways to advertise related products together, or rearrange the displays in your brick-and-mortar store to help customers find products that go together. Consider bundling items together to encourage customers to spend more money. A simple email or phone campaign to current customers with a hook can have your cash registers ringing in no time.
You can also boost cash flow through sales by offering loyalty programs that reward customers for frequent purchases. When customers feel appreciated through reward programs, they’re likely to increase the size of their orders or to return to you more often.
Another way to boost cash flow through sales is to consider increasing the prices you charge for products or services. Of course you want to keep your prices competitive, so take a look at what your competitors are charging, and see if there’s room for you to increase prices while maintaining a competitive position. Remember that selling products for prices that are too low for the marketplace can make your products seem less valuable, so raising your prices may actually boost your brand’s image as well as your bottom line.
How to Increase Cash Flow by Tending to Receivables
Take a look at your accounts receivables. Do you have clients who pay slowly, or haven’t paid you at all? While it’s an unpleasant experience for all parties, sometimes you must be aggressive in your collections. After all, you’re running a business and you have bills to pay like all business do – otherwise, you’re not in business for long. Putting a late payment penalty policy in place lets late payers know that you treat your receivables professionally and gives them extra incentive to pay on time. When you’re upfront about your policy and provide specifics about how penalties are assessed on your invoices, you can mitigate negative consequences to your cash flow when clients pay late. If you still have problems with late players, consider factoring your invoices. A factor buys your outstanding invoices from you for somewhat less than the amount due, but you get cash in hand right away, and you don’t have use your employees’ time to chase late payers.
One of the best ways to get clients to pay on time – and even pay early in some cases – is to offer incentives for early payments. Consider a percentage of the invoice amount as a discount for paying their bill in advance of the due date – but figure out your profit margin first so you’re not cutting into revenue. Some of your customers might bite right away. It saves them money, and helps you, too. Think about it – if some of your vendors offered you the same deal, you’d bite, too, right
Boost Your Cash Flow With a Better Invoicing and Billing System
You’re just boosting cash flow, not necessarily reinventing the wheel – but there are aspects of your business that could probably run smoother. When you’re constantly trying to spin all the plates yourself, you’re bound to forget things here and there. One of the things you can’t forget is to invoice in the first place.
You probably spend a lot of time drumming up new business, but administrative tasks such as invoicing are musts. If you delay your invoicing, you’re putting that much more time between you and your payments. Boosting cash flow through timely invoicing becomes infinitely easier when you use QuickBooks to handle your accounting. It can generate invoices automatically so you’re always on top of your billing, and you can even handle invoicing tasks when you’re on the go via the mobile app.
Invoicing might not be the problem at all, though. It might be your billing structure. Do you bill in advance, or do you deliver products or services and then bill? Depending on the nature of your business, you might want to try working on a retainer system in which your clients pay up-front for all or a portion of the work or products you’re providing. If your clients are willing to pay a substantial amount up-front, you can even offer a discount for their loyalty.
Offer Additional Payment Methods to Improve Cash Flow
Allowing your customers various methods of payment not only makes it easier on them, it also greatly improves your ability to collect. Most businesses offer the usual payment methods of cheque, credit card, or cash – but today you can offer other ways for your clients to pay, such as PayPal or Square and even blockchain methods, such as Bitcoin. By adding an extra layer of convenience for your customers, you can bet your payments find your bank account much more smoothly. Electronic payments also hit your bank accounts more quickly than do cheques, which can take days to clear.
Electronic payment methods can also help you on the other side of the payment equation. Make arrangements to pay your own bills electronically, and schedule payments for the day each bill is due to earn a little extra interest. Since the electronic payment is made instantly, there’s no need for concern about a payment incurring late fees.
Boost Cash Flow Through Negotiations
Cash flow isn’t all about your relationships with your clients – it also has to do with your vendor relationships. What are your current suppliers’ payment terms? Do you have Accounts Payables with Net 30 terms, while you’re offering your clients Net 60 terms? This can pose a real problem if cash is going out twice as fast as it’s coming in. Consider renegotiating payment terms with your vendors. It never hurts to ask. You may also want to team up with other small businesses that use the same supplies or raw materials that you do. If you form a co-op that buys supplies in bulk, you can probably negotiate lower prices from your vendors.
Subscriptions and Referral Programs
As mentioned above, creating a subscription program for your products or services can boost cash flow in the short-term. But what about long-term cash flow? One of the best ways of generating long-term cash flow is by asking your current clients for referrals. They know you, they trust your company, and they probably know at least one other person who could use whatever you provide. If you provide a service, consider offering it in 3-, 6-, or 12-month subscription plans. Your clients then pay for the services they need in advance, giving a boost to your cash flow in the present.
Whether you create an elaborate, incentivized program or simply take some of your best clients out to dinner, you might find next month’s sales skyrocketing.
How to Boost Your Cash Flow by Reorganizing Your Debts
If you have customers, you also have vendors. As stated above, depending on your offered payment terms for your customers (net 30, net 60, etc.), if your vendor payments are not in sync, you could find your business with an overinflated cash flow. Selling a note for cash is one creative cash flow option that can raise a little cash. If you have short-term debts, have a discussion with your lenders about the possibility of refinancing your short-term obligations and turning them into long-term debt that’s likely to have a lower interest payment. You can also negotiate with both your clients and your vendors to try to get your obligations to better sync up with your incoming customer payments.
By using some creative methods and paying attention to your sales, receivables, and debts, your cash can resume flowing like a rapid river. Improve your cash flow with invoices, payments, and expense tracking. See how much cash you have on hand with QuickBooks.