Cash flow is a real concern for a lot of businesses out there, especially small businesses. As pointed out in a previous post, a recent study found that only 38% of small businesses reported having favorable cash flow. Furthermore, 48% of respondents reported having cash flow issues in the last 90 days. So how can you remedy these issues? Here are 5 ways any business can improve cash flow.
1. Improve Invoicing
- If you currently use paper invoices, consider making the switch to electronic. By giving your customers the ability to pay online, you’re cutting out the inconveniences and delays associated with snail mail.
- Can your business model accommodate a recurring invoicing system? If your customers rely on you for an on-going service, you’re a great candidate for recurring billing. Tthis could make your cash flow look a little less like a gentle wave and a little more like a tsunami.
2. Check your Cost Per Acquisition AND the cost to retain the customer
- How much do you spend to find your customer? The better targeted your marketing or ad campaigns, the less you’ll have to spend to draw in your ideal customer. Likewise, calculating how much you spend trying to retain a customer can save you money in the long term. It’s important to analyze both marketing strategies to ensure you’re getting the right bang for your buck.
3. Increase Sales
- I know this sounds pretty basic, but sales are a huge part of the cash flow equation. Without incoming revenue, your “cash” doesn’t have a pool from which to “flow.” Ramp up sales by hiring staff, bolstering your efficiencies, or improving your marketing strategy.
4. Decrease Expenses
- Another point of order that should be addressed is expenses. First, evaluate the real needs of your business and decide what must stay (telephones, staff, etc.) and weed out sundries that can’t be sustained on your budget. Once you’ve decided what stays and what goes, check to see if you can renegotiate prices. Often times, insurance premiums and even rent can be whittled down, freeing up cash for your business on a monthly basis. Some other areas to evaluate are travel expenses (share a room), equipment (lease vs. buy), and utilities (turn off the lights!).
5. Pay your bills on time (but not too early)
- It’s as easy as it sounds. Spending money you don’t owe right now means that you have less float in the meantime. Renegotiating payment terms with suppliers could net you an extra 30 to 60 days with your cash.
Some of these tactics may seem obvious, but it doesn’t hurt to go back to the basics. You can never have too much cash flow for your business, so pick an area or two to focus on in the short-term, and get started today!