Steps for Success: Small  Business Cash Flow

Steps for Success: Small Business Cash Flow

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This entry is part 3 of 4 in the series Steps for Success

Your business success depends on how well you manage the money that comes in and out of the business. Cash flow is the lifeblood of your business. It is the main thing that determines whether or not you reach your marketing, operational, and financial goals.

Many businesses fail simply because they don’t pay enough attention to their cash flow.

Take the following steps to dodge that bullet, improve your cash flow, and grow your business.

#1 PLAN AND MONITOR

The best way to manage and improve cash flow is to keep track of it. Work out a plan and come up with an effective strategy. Set goals. Decide on weekly, monthly, as well as yearly profits. How much profit do you plan to make? And how are you going to reach that goal?

Determine what needs to be done to achieve your daily, weekly, monthly, and yearly money goals. Take note of your current earnings, business model, as well as the products or services you offer. Can you reach your financial goals with the current business model? If not, come up with a new plan. Identify areas that need change and make the necessary adjustments.

Is it possible to manage a steady cash flow with your current offer or you need to make improvements? If you cannot meet your money goals with your main product or service, improve it. Look for ways to make it better than the rest of the products in the market and therefore, more appealing to potential customers.

Once you improve your product and come up with an effective cash flow strategy, monitor the entire process. Track all your expenses so you know where the money is going and where it’s coming from.

Use the best bookkeeping software such as QuickBooks, Xero, and FreshBooks for efficiency and to save time.

#2 EVALUATE EXPENSES

Have a look at your overall expenses. Evaluate your day-to-day costs to identify excess expenses, unused subscriptions, overheads, and so forth. Isolate and cut unnecessary expenditures. Account for every cent and ensure you don’t spend money unnecessarily.

Reevaluate your operational expenses. How much money do you spend on daily, weekly, and monthly business processes? Is it too much, too little, or the right amount? If you are spending more than you can afford, look for ways to better manage different operations. Get rid of certain processes that you can do without and improve ones that have better returns or are worth investing in.

Come up with an exhaustive list of all the costs involved in all business sectors. For example, production costs, marketing expenses, subscriptions, and payrolls. If you invest more money than you are gaining from certain processes, make changes. Find effective ways to cut back on certain expenses and better ways to handle specific roles. For example, if you produce and sell products, find a supplier to minimize production costs. Work with a reputable and trusted merchant. Sign a 6-month or yearly contract for accountability and to ensure you both meet your contract terms.

If you are only starting and can’t afford to hire permanent employees, outsource work. Identify certain tasks that can be delegated and assign them to people you trust. This saves time, ensures you meet deadlines, and also allows you to cut off certain expenses. Such as monthly salaries, allowances, and other related costs.

#3 EVALUATE PAYMENT TERMS

Revisit your payment terms and see how they impact the business. Most companies make the mistake of setting long payable dates and delay sending out invoices. This forces you to withdraw money from your other accounts and channel it to your business to cover expenses.

This is one of the main reasons why a lot of startups experience cash flow crises and fail.

Work on your payment terms and ensure your customers understand the entire process. Decide how you want to be paid. Keep your business in mind throughout the decision-making process. Consider important expenses, operations, and labor. For example, if you give clients 30 days to pay, will you be able to continue operating?

Remember, the best way to succeed in any line of business is to ensure the business runs on its own without constantly relying on bank loans or external funding. So, determine the ideal payable and receivable dates. You can give clients 15 days to pay with a 7-day grace period, for example.

Next, follow up on clients. Send out reminders 3 or 5 days before the due date. Mention the 7-day extension to show the client you haven’t forgotten your agreement. This is a great way to maintain a steady cash flow and ensure the client sees how much you value the relationship.

Have clear and effective communication channels to ensure you address specified changes and solve disputes on time. Answer the following questions; Is there room for change once the contract has been signed? If so, what can & cannot be changed? Are there additional charges for major changes? Does the company policy point out how disputes or changes will be addressed? If not, revise your policies. This will work to your advantage in the long run.

#4 TIMELY INVOICING

Next, create an invoice policy. Include important details such as the day the invoice was sent, the payment date, as well as when the account will be terminated, where applicable.

Your policy should clearly state how the company handles outstanding accounts. For example, if you own a membership site and have monthly subscriptions, how many days do unpaid accounts remain active? How many days before deletion will the client be notified? And Are deactivated accounts recoverable or do subscribers have to choose a new plan?

Document all the necessary information and make sure the client understands your terms before engaging in business. This will help you avoid delayed payments and related issues.

Make it your priority to always get paid on time or even earlier to improve cash flow and avoid going through your personal finances to cover business expenses. Send out invoices on time and encourage customers to meet their end of the deal.

Achieve this by rewarding early payments, sending out Thank You notes, and most importantly, offering the best service. Improve your service or product and give your customers the best experience.

#5 IMPROVE PRODUCTS/SERVICES

Make sure your products are better than your top competitors and keep your clients interested in doing business with you. Offer discounts to encourage early payments. For example, give a 10 percent discount to returning customers or a 30 percent discount for bulk orders.

Offer giveaways or free service whenever you can. For instance, if you sell desktop computers and installation services, and a client orders 6 or so computers, offer to setup the hardware for free in all offices. Give your customer a reason to continue doing business with you and recommend your services.

If you still fail to receive payment on time after perfecting your product, coming up with the best invoice policy, and ensuring both parties agree with the terms, revise your contract. Include penalties for late payments in your contract and charge extra for delayed payments. This is the best way to ensure your customers pay you earlier or on time. 

#6 PRICING STRATEGY

Improve your pricing strategy. Use different pricing methods to boost sales and keep the money coming in. For example, use bundling. If you are a graphic designer, for instance, identify additional services you can offer. In addition to designing company logos, you could design business cards, brochures, flyers, and so on. Take it a step further and create an eBook. Publish and sell it on Amazon Kindle Direct Publishing or your website.

If you are good at what you do and have decent writing skills, you can complete your book in no time. Promote it to your existing followers, boost sales, and channel your earnings towards the business.

Use competitive pricing. Study the competition and improve your strategy. Offer massive discounts on costly products and free services for what the competitor charges. Just make sure you can afford to. Don’t underprice yourself or offer free labor only to harm business operations in the process.

Use cost-plus pricing. Consider important factors such as production costs, desired profits, as well as the time spent when setting the right price. This is the most effective way to improve your return on investment or ROI because you are not just charging for the final product but the entire process. 

#7 INCREASE PRICES

Focus on building your reputation as a brand and giving your clients the best service. This will help you build trust, form long-term relationships and attract even more people. Once you accomplish that, increase your prices. Your customers will be more than willing to pay because they value and trust your service.

Concentrate on improving your skill first. You can use countless free and paid online courses or enroll in a local college. The goal is to cultivate your skill so you can offer exceptional service and be a step ahead of your competitors.

One of the main reasons for poor cash flow is undervaluing yourself so, avoid that as well. Continue to grow and improve so you can add value to your customers’ lives and make it easy for them to agree to a higher price.

Next, expand your client base. Once you become an expert in your field, grow your audience. Identify related services or products you can offer, and market them to your target audience. This is one of the most effective ways to boost sales and improve cash flow.

#8 AVOID DEBT

Debt is one of the main reasons most startups fail. Avoid it whenever you can. Make it your goal to only use money that you have raised as a business for day-to-day operations.

If there is a new department you want to add or if you need money for certain processes, make it your goal to raise the money as a business. Use your existing products or services to raise the right amount. Calculate how much is needed, go through your financial accounts and find out how much you are making. Estimate how long it will take you to raise the money and look for ways to speed up the process if you need to.

For example, you can add extra value to your product and charge extra. You could also offer related services and run promotions to attract prospects.

Raising money on your own will help you avoid getting into too much debt. Which often leads to bankruptcy and business failure.

Another option is to apply for a business loan. This can be effective if you use the money wisely and can pay it back on time. However, it should be your last resort. Meaning you should only apply for a loan when you run out of options and when you have an effective plan on how you are going to pay it back.

Always pay suppliers as well as employees on time to avoid debt and ensure stronger relationships.   

#9 NURTURE RELATIONSHIPS WITH EXISTING CUSTOMERS

Invest your efforts into building long-term relations with existing customers. Make it your aim to turn first-time clients into recurring ones. Bring value to their lives and always offer great service. Keep them interested in the partnership by meeting their needs, offering discounts, early access, and going beyond expectations.

If you do more than is expected, your clients will be happy to grow the partnership and continue doing business with you. Make it your point to offer extra value and always meet client needs.

Grow your client base. Figure out ways to attract more people to your brand and expand your business. You can use online ads to reach more people despite location, demographics, hobbies, or profession. However, this does not guarantee success. This is because most of the people you market to may not be interested in what you have to offer. Some may not even click on your ads let alone look at them.

The best way to go about it is to channel your marketing efforts towards your existing customers to accelerate the process and improve your chances of success. Advertise to existing clients and past clients. Email promos, new offers, and so on.

You can also identify your customer’s new needs or challenges and provide a solution. Run a survey or ask them to leave comments on your business pages. Ask about their challenges or pain points and provide a practical solution. Talk about your product and how it solves their problem. Create a sense of urgency. For example, offer massive discounts to the first 25 or so clients. Include freebies in your packages to pique interest and inspire action. Ask happy clients to rate and review your product via email or on the comments section of your site and social pages. This will attract more people to your business, prove credibility, and help you reach the right people.  

#10 START SAVING

Last but not least, have a savings account. Set aside a certain amount of money weekly or monthly and never use it to cover day-to-day expenses. Decide the ideal time to withdraw the money. For example, you could choose to continue growing your account for the next 6 to 10 years without any withdrawals.

Decide where you want the funds to go when you reach your target. For example, how are you going to use your savings? Do you plan to build new offices, expand your business, or develop a new product? Whatever your goal, make sure it’s written down and specified. This is one way to ensure you reach your aim and avoid going through your savings.

Have an emergency fund to cover unexpected expenses and avoid getting into debt. An emergency fund ensures you don’t use your business accounts for personal expenses. Such as home renovations, repairs, travel expenses, an unexpected illness, and so on.

If you find yourself in any of those situations you can use your emergency fund. You won’t be forced to go through your business accounts. So, come up with effective ways to build your emergency fund and take the necessary steps.

If you do adequate research and come up with an effective strategy, you will succeed.  

Start a side hustle and channel the money towards your business to improve cash flow. Identify your top skill, improve and monetize it.
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