Cash flow is the lifeblood of every business, but all too often, business owners don’t pay enough attention to bringing adequate income into the business as quickly as possible, and on a consistent basis. The result is not having enough cash in the bank to pay employees or suppliers. You can correct financial mistakes that keep your business cash poor.
There are numerous actions a business can take to solve cash flow problems, make sure income meets cash demands, and ensure the company stays in a financially solvent and viable condition.
Know Your Exact Income Planning Target
Knowing exactly how much income the business needs to bring in on a weekly or monthly basis to meet all the income demands is simple if you create an accurate cash flow budget. A budget is a calculation of how much the company needs to operate, to pay for present and future expenses, and to pay off debt. The calculation also reveals the income planning target for the company. I often find a business owner under-estimates their income target by 13% to 25% based on the industry they are in. Creating a cash flow budget is a real eye-opener when they realize they have been operating on a number that is too low and that alone created a large part of their cash flow problems.
Set Sales and Collection Targets and Quotas
Holding a weekly meeting with sales and collection teams where targets and quotas are set based on the income planning target can immediately boost income. Without a specific demand put on the individuals in the teams and the managers of the teams, they have no target to work toward. Additionally the business owner has no method of evaluating the production of the team members and their managers.
Know When To Raise Your Prices
How long has it been since your business raised its prices? The cost of doing business goes up 8 to 12% a year and your suppliers are undoubtedly raising their prices they charge your business, sometimes disguised as a hefty added on “fuel charge” for delivery of their products to your business. Supplier cost increases need to be passed on to your customers.
Customers are smart, and they know your prices from your suppliers are going up. Heck, the cost of a gallon of milk has gone up at least 30% in the past year alone, so consumers are aware things are getting more expensive. If your prices stay the same year in and year out, your customers will start to wonder if you are desperate for business. Especially if your competitors are raising prices and you are not. Consumers can sense when a company is confident and certain, and when they are desperate and starting to view customers as a wallet walking in the door, rather than a person to be served with great customer service.
Tip – When you do raise your prices, it is better to do it in small increments more often than in one large jump that will shock your current customers. If you raise prices in small increments, your customers will justify the increase by saying to themselves, “Well everything is getting more expensive, so I’m not surprised.” So you raise prices a little and it validates the conversation the customer is already having with themselves inside their own heads, and it eliminates the shock value.
Promote Your Products and Measure Your ROI
There is an old advertising adage I learned from an advertising guru back in the early 1970s. He said, “When times are good you need to promote, and when times are bad you need to promote even more.”
That is still true today. A business owner often makes the mistake of cutting marketing and promotion spending when there are cash flow problems. They treat advertising as a discretionary expense, and it is anything but that. Advertising and promotion is mandatory, especially online internet marketing.
Most consumers have a computer or two at home, but they are walking around 24/7 with a computer in their pocket or purse. It’s called a cell phone, and they use it to search the internet for a place to buy whatever product or service they want or need at the moment they decide to buy it. If you aren’t talking to your current and potential customers using consistent promotion, I guarantee your competitors are talking to them, and then your potential customer is more than likely going to buy from your competitor.
Measuring the effectiveness of the advertising dollars you spend is critical. Knowing that internet marketing takes time to build traction is as important as knowing that a postcard mailing will take a couple of weeks to produce measurable results. Just because something doesn’t seem to be working doesn’t mean it won’t work. Sometimes it is a time factor, and other times something is slightly wrong with the message, or the target market demographics are not focused enough.
Don’t Be Afraid To Waste A Customer
Some customers are never-satisfied and will constantly delay their payments to you, or try to negotiate big discounts based on some strange value they have on their importance to your business. They forget that you are in business to make a profit, and you have every right to make an adequate profit that will help you meet the financial goals you set when you opened your business. Nobody opens a business just to pay their bills and make their suppliers wealth, right?
Don’t be so desperate for a sale that you allow yourself to deal with a customer who does not appreciate the quality of your products and services. Maintain a standard of quality for your customers and you will attract only quality customers who can and are willing to pay you promptly what you deserve to be paid.
Don’t Bet Your Financial Future On One Client
Never have a client who owes you more money than you can afford to lose. Bankruptcy filings are rampant these days and you don’t want to be in a position of having to eat a loss that causes your business to go down the tubes. Work to have many, many good quality customers who pay consistently. Make non-payment punishable by putting them on permanent COD terms.
Set Firm Financial Policies That Speed Up Cash Flow
Setting financial policies that can speed up cash flow are very effective, especially when your sales team encounters a customer asking for special concessions. Some financial policies to consider are:
Getting Paid a Percentage Or The Entire Amount Up-front
Break Up Payments For Large Jobs
Be Very Selective When Offering Payment Terms
Make It Financially Painful For Late Payers
Putting in the correct cash flow management and financial policies can quickly and effectively solve the most pressing cash flow problems.