Good cash flow is essential to any business, but sometimes that cash can get “lost” in the midst of everyday operations. Try digging in the five areas that follow and see if you can uncover some extra cash.
Employee and payroll costs can comprise a significant portion of your expenses. Here are some approaches that may allow you to free up some cash.
- Switch to an online payroll system. If you’re paying someone to do your payroll, or doing it yourself, you can save money by automating the process. You will cut out the bookkeeping fees, or the time it takes you to figure hours, payroll, taxes, and cut the checks.
- Outsource some of your work. Rather than hiring full-time employees, consider hiring freelancers or independent contractors to do some work. By doing so, you will save the obvious expenses such as a full-time salary and benefits, and because you’ll hire someone who is already an expert, you will also save on employee training.
- Combine positions. Before you hire another employee, look at the tasks your current employees do, and then determine whether you could spread the additional tasks among them. If so, you could save the costs of a new hire, plus get more for your money from your current employees.
- Use nonpayment incentives. You don’t have to reward your employees with cash, but can instead use time off and other forms of recognition when they do a good job.
There are likely areas in your general expenses where you can free up some money. Some ways you can save are:
- Transition to a paperless environment. By eliminating the majority of paper in your business, you will save on printers, toners, and ink — along with maintenance costs. You will also save by reducing the amount of office space needed for storage.
- Lease instead of purchase. Rather than purchasing expensive equipment, furniture and other large items, consider leasing them.
- Offer employees the option to telecommute. Employees need space to work, but you can reduce the amount of needed office space by asking some employees to telecommute some of the time. Recent studies show that employees are typically happier and more productive with these types of arrangements.
You may find some hidden cash hiding in your accounts receivable, which can be freed up with just a few adjustments.
- Shorten customer terms. When you offer terms to your customers, you give them an interest-free loan rather than keeping the cash to run your business. At the same time, think about shortening the terms you offer customers. For instance, if you currently allow your customers 60 days to pay their invoices, change the term to 30 or 45 days if you can without losing their business.
- Ask for deposits. Rather than financing the total amount, ask your customers to pay a deposit to help free up some of your cash. If you currently require deposits, ask for larger ones.
- Offer discounts for early payment. By offering your customers a small discount to pay their invoices before they’re due, you will increase your cash flow. Add your discount offer to your invoice template to ensure your customers are always encouraged to pay early.
- Automate your collections process. By automating your collections process, you will likely cut the amount of time it takes to collect delinquent invoices, which will free up cash. In addition, you will save time and resources because you won’t have to send bills and reminder notices, collect overdue invoices, and track your accounts receivable.
By negotiating with your suppliers, you may be able to find some extra cash. For instance, you can:
- Negotiate for longer payment terms. Just as you can change your customer payment terms to free up some cash, you can request a change in your supplier terms to do the same. But while you want to shorten your customer’s terms, you should ask to lengthen the terms you have with your suppliers. This will allow you to keep your cash longer, which will contribute to your cash flow.
- Ask for early payment discounts. You can further reduce your costs by asking suppliers for an early payment discount.
- Ask for better pricing. Often, you can negotiate with suppliers for a better price, especially if you consistently buy from them.
- Purchase in bulk. When you have multiple jobs that require the same product, or even one large order, talk to your supplier about getting a bulk discount.
If you sell hard goods and have to carry inventory, take a look at the following suggestions to discover whether you have any hidden cash lurking on your shelves.
- Renegotiate your inventory financing. The lower the interest rate on your inventory financing, the less you will have to pay for your goods, and the better profit margin you will realize.
- Create a just-in-time (JIT) inventory system. By forecasting your inventory needs and creating a JIT system, you can save money on inventory insurance and taxes, along with the related servicing costs.
- Quickly turn your inventory. The longer your inventory sits on shelves, the less cash flow your business has. Reduce the time it spends on the shelves by properly forecasting your needs, taking into account special sales, seasonality, and one-time events. This will also ensure that you don’t lose money because of inventory that has become obsolete or been damaged.