Tips to improve your Cash Flow
I often have new business clients who are not sure what to do when cash flow is tight. So I have put together some ideas to help out.
Increase sales
Always seek additional sales by mentioning and inviting all people you meet through your life to your services or products. It is free but professional.
Get away from the mainstream operations and spend time on marketing and selling your business. Often this is a major problem in many small businesses
Have business systems capture client details so as to make efficient future direct marketing, such as a web site or point-of-sale equipment.
Ask for referrals and testimonials which can help attract the business. Wherever possible have an incentive scheme to encourage and track such referrals.
Improved gross margins
Look at individual product and service lines with a view to reviewing profitability margins on their performance. Often businesses do not actually know how profitable different lines are. If this is the case, establish better accounting systems to provide such information.
Conduct annual price reviews. Many people businesses simply avoid or afraid to increase prices. However, this may be necessary when direct or overhead costs have been rising in order for you to maintain profitability.
Occasionally conduct reviews of major supplies that are used directly in the manufacture of production of your products and services, and compare them to competitors’ pricing. This will hopefully assure you your supplier is providing you competitive pricing or an opportunity to bargain down their pricing or achieve better pricing elsewhere. Keep in mind other factors in the procurement process including service, quality, and reliability before changing long-term suppliers.
Improve overhead expense margins
Review your overhead expenses and wherever possible seek to eliminate over expenditure. Some main areas include banking fees, motor vehicle fees, interest charges, phone, and mobile expenditures and stationery supplies. Some of these can be purchased elsewhere and at more competitive costs.
Are all subscriptions and expenses still appropriate? Are all expenses being authorized within a purchase ordering system and within the purchase officer’s delegation?
Is there a sufficient budget process for all overhead expenses? This is a great way to control spending and control your overhead expense margin.
Improved turnover of debtors
Review debtor terms to see if they are too generous. Can they be reduced to current or future customers to improve your trading cycle?
Is there an established procedure to collect debtor payments? For example, are they being telephoned within 2 days of lateness, then an arrears letter, and then followed by further legal action. The longer you allow debtors to be late, the greater the risk of non-payment. Bad debts can be an avoidable and necessary hurtful business.
It is vital debtors are screened in a credit application process which includes identity and credit limit. It is also important to maintain the debtor within such a limit to avoid exposure to bad debt.
Slow turnover of creditors
Pay creditors on the date they are due, so to stretch out your creditor payments.
Apply for credit accounts with certain suppliers to gain longer payment time
Ask for repayment arrangements with suppliers, in times of difficult cash flow. This may seem unrealistic, however, your suppliers will appreciate a notice in advance if you are experiencing some difficulty paying this monthly payment, and with notice and a proper explanation, the supplier is much more likely to remain happy and content with a repayment arrangement, rather than an uncertain late payment.
Improved turnover inventory
Seek to maintain optimum levels of stock which maximize your use of price and storage.
Focus more on high moving inventory lines and clear any slow-moving stock even if it’s not at a profit
Encourage customers to make large orders in advance or standing orders so that inventory can be managed in advance with certain sales pending.
Control expenditure
Look at expenditure on capital which will improve productivity and ultimately improve cash flow.
Have a capital expenditure budget so that you limit the cash drain on your business. Review possible capital expenditures and only spend those which appear to have the greatest return.
Establish a good business banking relationship, to receive some free advice from your financier on alternative methods to finance capital projects which may maintain better Working capital within your business structure.
If you are experiencing some cash flow difficulties and would like to speak to an expert on improving your position, don’t wait till it’s too late and call Romeo on 0416 023 719.
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