Always ways to improve
Do you often have your small business customers complaining that they canâ€™t keep enough cash running through the business? If so, take the opportunity to give them some tips on how to improve their cash flow.
Youâ€™ll almost always find there are things they can do to improve their cash flow, from shortening cash cycles to managing debt. The idea is for them to get on top of their cash flow, because it means greater freedom and opportunities to grow their business. A healthy cash flow means more working capital to reinvest in the business and sustain its competitive edge.
Shortening cash cycles
Itâ€™s important to understand what kind of cycle a business is on. For instance, is it like a hairdresser, that sees cash coming in daily, or is it more like an orchardist, on a seasonal cycle that sees fluctuating sales during winter and summer?
What business owners donâ€™t want are lengthy periods of time when their business goes without cash. They can lead to all sorts of problems from paying creditors to keeping operations going. So they need to find ways to shorten their cash cycles, such as:
- Try to be paid on the spot â€“ offering people mobile payment options is a great way to get paid immediately. And it means theyâ€™re not waiting till the end of the month for the cash to show up in their account. Because letâ€™s face it â€“ money in the bankâ€™s more use than a check in the mail.
- Encourage early payment â€“ if they still need to invoice, do it early. Donâ€™t wait for the end of the month. And provide incentives to encourage people to pay early. For example, some businesses offer a small discount for paying within 10 days of an invoice date.
- Donâ€™t skip credit checks â€“ this is especially important if the business owner is still invoicing. Itâ€™s important to do their homework and check up on their customers, so they can be sure theyâ€™re allowing only reliable customers to have credit.
Here are some tips you can give them to improve their cash flow:
- Reducing costs â€“ review the business and look at ways they can cut costs, such as exploring different energy provider options, getting rid of outdated and un-used equipment, using technology to streamline processes, and outsourcing time-consuming tasks such as payroll.
- Review pricing â€“ it might be time to increase prices, as it widens your margins and frees up cash for business growth. Business owners should always be seeking to increase prices over time, so that they can improve their profit margins and keep up with inflation.
- Talk to creditors â€“ the absolute worst thing people can do if facing difficulties paying bills is to bury their head in the sand. Instead, be upfront with creditors and work with them so that debts can be paid efficiently.
- Manage debts â€“ if theyâ€™re owed money, the faster theyâ€™re able to obtain it using effective collection tactics, the better. Ideally, they want to reduce the chance of bad debts and pressure on their businessâ€™s cash flow.
- Become more streamlined and efficient â€“ thereâ€™s lots of technology out there designed to streamline business processes and make them more efficient. For instance, cut down on travel costs by using Skype instead.
Here at TSBC, weâ€™ve got plenty of content around cash flow and profit. Get in touch with us so we can help boost your online content.
Glen is the founder and CEO of The Small Business Company, a New Zealand based agency that specialises in helping banks communicate with small businesses through content marketing. He has written a number of books on small business principles and is a sought after consultant and conference presenter.