When running your business, it’s imperative that you have a firm grip on the cash flow. Besides understanding the nature of the cash flow in your business, its diligent management is important if you want to maintain a good profit.
Among other skills, entrepreneurs who have mastered cash flow management tend to perform better than their counterparts who are still struggling to understand. An optimized cash flow is a critical factor when operating a successful business. Nevertheless, this isn’t just about generating more income. But rather, it boils down to balancing expenses, income, and speeding the invoicing process.
Fine tune your pricing strategy
While there some truth with the notion that raising prices for existing products and services can lower the sales volume, it’s always prudent to do some market testing. This will help you determine what the existing market is willing to pay for the products and services without decimating your sales.
Basically, the market interprets an increase in price as an increase in value. As such, people who were reluctant to purchase the product will be enticed to make a purchase. On the other hand, if the price is below the market price, the customers can easily think the product comes with mediocre quality. However, this doesn’t mean you should make the product too expensive. If you do, you will definitely lose some of your existing clients to other businesses. Basically, you should find a price that is in the middle since this is where most buyers feel comfortable.
Renegotiate the existing contracts
When you have several supplier contracts, you definitely know that costs tend to add up quickly and if you are not careful, they can easily get out of hand. If you have been working with a certain company for some time, it’s possible to renegotiate the terms of the contract. However, this will only work if you intend to keep working with the company for the long term.
Normally, most companies will be willing to accept the new arrangement as long as they will retain you for several years. In fact, it becomes easier for them since they already know they’ve won a long-term customer. If there is any provider who’s reluctant to embrace the new arrangement, try to find ways of lowering the costs by dropping any extra service that isn’t necessary to your business.
Improve the marketing strategy
The key to a better cash flow is an intensified marketing outreach. Besides lowering the cost per lead, an improved marketing will help you penetrate new markets and win long-term clients.
With the emergence of digital technology, it’s important that you have a plan to educate your customers and build trust. Once they view your business as a trustworthy partner, you will easily convert the leads into long-term customers.
Offer discounts for timely payments and penalties for late payments
By offering an incentive, you may entice your clients to make early payments. Generally, settle for a 2%-4% in discounts. While this will eat into your revenue, it will encourage most of your customers to settle their accounts early and you won’t have cash flow problems.
On the other hand, you can add some interest to the accounts that haven’t been paid for some time. When you implement these strategies, you will be encouraging most of your customers to pay at the right time. on the other hand, you’ll end up saving the time and resources you would have spent making follow-ups.
Ensure you have a backup plan regarding cash flow
Emergencies happen even when you’ve made foolproof plans. As such, it’s important to have a line of credit that you can utilize to cover some expenses if there are unpredicted gaps in the cash flow.
Nevertheless, you have to bear in mind that this is an installment loan from direct lender and you are expected to pay some interest on the utilized credit. Therefore you will be safe if you use what your business can handle to avoid bigger financial problems.
Alternatively, if your business is going well at the moment, ensure you have some money stashed in your saving account. This can act as a safety net when your cash flow becomes erratic and you will be able to keep the business afloat.
Benchmarking your business is important
Benchmarking is a great way of measuring your business operations against the acceptable norms in the industry. You can compare profit margins, costs, debt ratio and inventory ratio.
By getting a report that describes businesses in your industry, you can clearly see the critical areas where you must make improvements to improve your competence.
Monitor the cash flow regularly
While it may be daunting to keep track of all your cash flow and at the same time focus on sales and revenues, diligence in monitoring the movements of money will save you lots of trouble.
This doesn’t just mean you should know your daily receivables and payables. In any given month, you should have a rough estimate of the amount you expect to receive and spend. When you are monitoring, make sure to take corrective measures if you discover a negative trend.
Final thoughts regarding cash flow
While small businesses are laden with cash flow problems, they are not a death sentence. In fact, with a few adjustments to business operations, you can correct the anomaly and stabilize the cash flow. Basically, you have to constantly monitor your business and make adjustments where necessary. before looking further for problems, ask yourself if your operations reflect the industry best practices.