How to improve cash flow in your business?
Cash flow is one of the most important things for businesses. Poor cash flow is disastrous.
At best, it will be a serious limitation on your company and its potential. More of it can open up a lot more opportunities and make the journey much easier.
So, how to improve cash flow?
The Importance Of Cash Flow
Cash flow is vital. Without it, you don’t really have a business at all.
Cash flow keeps your company afloat. It enables you to survive. You can’t pay the bills forever unless you have money coming in.
Positive cash flow also enables you to grow and expand your business and build up reserves. It is also a highly attractive metric for potential lenders, investors, and even acquirers.
However, contrary to the claims of some gurus, it isn’t only just about the cash flow. Only being concerned about cash flow can be highly risky too.
It can definitely bite you back if you don’t set some of that aside in reserves for crises and at least be able to become profitable at the flip of a switch when you need to.
Cash flow is the lifeblood of your business. It makes everything work or not. It doesn’t take many weeks of no cash flow to sink even the largest and oldest businesses. You always want to be growing it. It is also a critical component when you think as well at raising capital from investors and something they follow closely.
Keep in mind that in fundraising storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
What Hinders & Decreases Cash Flow
Before getting into how to improve cash flow, it is smart to know what can be a roadblock to it or send you into a declining cash flow spin.
These are some of the most common root problems of cash flow issues.
Running on losses
While it now seems like the status quo, intentionally doing this and growing at all costs and supersizing losses, hasn’t always been fashionable. In fact, it still isn’t seen in a great light in many countries and economies.
We saw how this and general stalling of cash flow took down some of the largest and most established finance businesses in 2008.
More recently we saw how WeWork shot to stardom going fast, and then lost its investors’ tens of billions of dollars overnight when the money and credit stopped coming in.
Sitting on inventory
Sitting on inventory costs money. It is a constant bleed. One that can ultimately steal all of the positive cash flow and profits from other sales you make.
Holding inventory can be one of the biggest risks to cash flow. It is costing you money in some way. That may be storage, rent, taxes, maintenance, or something else.
Weak sales and marketing
Without strong sales and marketing, then you aren’t bringing in revenues and profits.
It doesn’t matter how genius or noble your idea is and how amazing your product is if your sales are letting you down.
Seasonal fluctuations in demand
New business owners are often simply crushed by not knowing their industry or local market well enough. Often virtually all of the business can be done and cash brought in just a few months of the year.
That can fool you into expecting that level of cash. Or you may starve because there isn’t enough volume for months ahead of that season.
Unanticipated Market Changes
Natural disasters, cyclical economic changes, and other disruptions caused by competitors can all derail plans and expectations for cash flow.
Business owners need to know that these threats are a matter of when, not if, and should be prepared for them. This is why they should have extensive knowledge about how to improve cash flow.
Over Investing For Capacity
Investing too much in space, equipment, tech, employees and other things upfront can kill your business. They often require significant financial maintenance. Many new business owners spend far too much on things they don’t really need, instead of taking a super focused and lean approach.
Debt eats your income. You can have enormous amounts of top-line revenues, but it can be worthless if it is all going to pay debts, loans, leases, and other expenses. You can be bringing in millions of dollars, but not have a dime of free cash flow.
Ways To Improve Cash Flow
These are some of the many ways you should know how to improve cash flow and strengthen your business. While there are several strategies you can employ, the bottom line is lowering your business costs.
Just Say No To Office Space
You don’t need it. It’s a luxury you probably cannot afford. There are plenty of multi-million and multi-billion dollar businesses that started out in dorm rooms, garages, and small apartments. Today, you can run the biggest businesses virtually in the same way.
You may even want to say no to any type of space at all. No to retail. No to warehouses, and so on.
Only Hire Remotely On Demand
Even if you are already locked into office space or other premises, and it will just be too damaging to let it go, you can still be disciplined to only hire remote and distributed staff. Make them on-demand contractors and service providers that scale with your needs.
There are many, many advantages to this form of staffing. Cash flow is one of the big ones.
You may pay the same hourly rates, or even more if you want to tap into the best talent in the world.
Though you aren’t shelling out for benefits, static salaries, equipment, and all those complex contracts and paperwork that comes with old-school HR.
If you’ve already made the mistake of hiring too many people or hiring in-house, you can always correct that. No business owner ever wants to lay anyone off.
It is one of the hardest and most painful things you can have to do. Though sometimes you do have to do it.
The sooner you do, the better it will be for everyone else, including the remaining team, shareholders and customers.
Take a look at how you can right-size your team and their workload. In many cases, one person could be doing the same tasks as three or four individuals or agencies.
For example, you may not need a PR firm, copywriter, marketing strategist, email marketer, and Google ads person. One of them may be adept at all of these tasks to a level that is sufficient for your stage.
They may give you a better deal for handling more of your needs. Just don’t make the mistake of throwing them into things that are not in their specialty, or it can ruin all of their work.
Help Your Teams Be More Productive
If your team members can be more productive and get more done, that alone can increase your cash flow.
This can range from giving the productivity tips, giving them mandatory time off to recharge and avoid burnout, negotiating deals to give them free gym memberships, productivity tools, and coaches, or having them work fewer hours.
It may make a lot more sense to have more people working fewer hours than burning out a few. It will be a lot better for your brand and results in the long term too.
Boost Marketing & Sales
Boosting your marketing and sales is probably the most direct method of how to improve cash flow.
You can either simply amplify and multiply these current efforts, or choose to optimize them. This should be your top priority.
Look at your analytics and see where you can improve your sales funnels, from optimizing conversions on ads to landing pages, and sales calls and emails.
Focus On Better Paying Customers
Take a look at your data and evaluate and score your customers. 20% of them are probably far better performers than the rest. Which are most profitable for you?
These may be those that bring in the most cash. Though also look at how profitable they are and how much work they are, as well as the long-term impact on your business of making this shift.
One of the top causes of cash flow crunches, especially for young startups is having to float costs until payment comes in.
Often their best month of sales is the month they go bankrupt. The revenue can’t come in fast enough to meet the expenses they incurred to meet orders.
Try pre-orders and getting cash in advance instead.
You may sell a lot more, a lot faster, and be able to supersize your ongoing cash flow by offering financing.
So many businesses are sitting on enormous amounts of inventory that is costing them money or are severely limiting their potential by failing to offer financing. It’s what people want today.
You don’t have to necessarily finance them yourself either. It’s great if you can.
Though there are many third-party finance partners which can automate financing on your website and checkout.
Often they will even pay you upfront, and make the payments from the customers. Or you can take those accounts receivable and sell them for lump sums of cash now.
Offer Discounts For Early Payoffs
If you have already extended credit, but need more cash now, you can offer discounts to customers if they pay off their credit early.
Have Strict Late Fees
Slow-paying customers can wreak havoc on your cash flow. The longer they go without paying the more likely it is that they will never pay.
Implementing the maximum possible late penalties can be a great motivator to get people to pay consistently. This can even become a great tool for boosting revenue on the same sales.
Offer Upgrades & Upsells
Selling to your existing customers is always easier than finding new ones. So you can offer new upgrades or accompanying products to produce more cash flow.
Just be wary of hiking prices or giving weak ‘upgrades’ to loyal customers. You may see others doing it, but burning your best customers is always a losing strategy in the long run. If you want to learn how to improve cash flow, understand that you must give them more value.
Find Better Deals With Suppliers
How about finding better sources of inventory, manufacturing, and shipping? Or negotiating better deals with the ones you have?
If you owe suppliers back invoices because your cash flow has been weak, then can you negotiate discounts to pay them up now? It may even be worth financing that to save the relationship and avoid their late fees.
Bring More Of The Supply Chain Inhouse
If you can’t free up more cash flow by working with these party vendors, then how about expanding and bringing more of that in-house.
You’ll be able to control it, and potentially, greatly bring down the cost, and even create several new sources of diverse revenue.
If you can’t find a way to efficiently recreate these things, then consider a merger or acquisition to fund the ground running.
Figuring out how to improve cash flow should be a part of the initial business strategy you develop. If you would like more information on how to get that done, check out this video I have put together.
More Ways To Improve Your Cash Flow
- Create your own online assets versus selling on third-party platforms
- Finding new sales channels
- Considering partnerships, including licensing, and franchising
- Find more ways to monetize your business
- Restructure existing debt and financing terms
- Selling off underutilized assets
- Leasing versus buying for lower monthly payments
- Form a buying cooperative to harness group buying power
- Invest in automation to reduce hiring needs, go faster and handle more customers
- Slash costs including subscriptions, underutilized software, and company vehicles
- Go lean using the 80/20 rule. Keep the features delivering 80% of your cash flow and shed everything that can you live without
- Solicit referrals and repeat business from existing customers
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