Cash Flow Solutions For Business
Cash is the life-blood of any business. While the cash flows, the business continues to function. Profits become secondary to cash flow in the pecking order of business survival. An unprofitable business can still run.
A business without cash to pay its way is dead in the water and can quickly be buried.
Most businesses operate hand-to-mouth. This is one of the main reasons why some businesses struggle to grow. Progress is often cancelled out by set-backs.
And the required actions that will improve and increase the business cannot be financed.
If you were to map out your cash flow, who’s graph would look like rolling hills?
You hit peaks, which are then dragged down by the troughs.
It looks like you’re drowning but keep coming up for short breaths.
When you average out the peaks and troughs and represent the average with a straight line, does the line point upward or downward?
This is called a trend. When you can see a trend clearly, you know that the trend will not change on it’s own. Something has to happen to change it.
The ideal representation is much less chaotic and as uneventful as you could possibly make it. The line should look like an aeroplane taking off, not a rocket.
Rockets always come back down to earth or burn up on re-entry on the way back down. You want a nice gentle and sustainable incline that fuels itself and takes gentle management to maintain it.
So how do we iron out cash-flow?
External help:
1. Get a loan
Approach your bank
Approach friends and family
Attract investment
Invoice financing
External help does nothing to solve the underlying causes of cash-flow crisis. They are short-term solutions that can add to your costs and increase the severity of your cash flow problems in the medium and long-term
Internal discipline:
2. Cut costs
Examine your costs and suppliers. Negotiate, if you can. Change suppliers if you can get a better deal.
The main costs to look at are:
Utilities
Rent
Rates
Consumables
Staffing, especially contract or part-time
3. Collect all the money that you invoice
It’s not called income till it is in the bank!
Credit control – collect outstanding money
Due diligence – check out the credit worthiness of your customers
Do not extend ‘credit’ to new customers who are not ‘credit worthy’
Terms and conditions – ensure that they are complete and fit for purpose
Enforceable contracts and agreements – Avoid misunderstandings that could cost you money
Ensure that you deliver everything as agreed and get proper sign-off and acknowledgement on delivery.
Clear up and finish any items that are outstanding.
Enlist the help of experts to collect when every other avenue has failed.
Structure your sales process so that you cut the chances of having an unpaid invoice as much as possible.
Take payment in advance wherever possible.
Take deposits where possible, to ensure there is commitment to follow through from your customer.
Try to produce as many sales for products where cash or credit card payments are the standard rather than invoice terms.
4. Increase sales
The easiest way to increase your income is to increase your sales revenue. You can create a new sale in 5 minutes.
There are several ways to generate these. Try all of them:
Farm new sales from your existing cusomers
Communicate with your clients and help them to find more solutions.
Structure easy ways for clients to deliver repeat business.
Do all of your clients use all of your services / products? Are they aware of everything that you can provide?
Are you in a trusted position for them to tell you if they were in the market for something?
Hunt for new customers
Find new prospects and turn them into paying customers.
Pick up the phone and start a conversation with someone who is in a position to make a decision.
Innovate
Do your customers have other needs that you could easily meet?
Are there further products that you could provide to your clients, rather than leave them to find them from a competitor?
Productise
Create products from your services that you can give away,
Create valuable products from the services or advice that you currently give away.
Create products that you can charge smaller amounts for.
Create products that you can sell to a wider audience.
Source complimentary products and offer them through your online sales channels.
Can you create passive income streams?
You need good sales processes, sales practices and supporting systems, but that is another subject.
5. Become Tax Efficient
After all of this hard work, why would you want to give more that you have to, to the tax man?
HMRC asks you for no more that 20% of your profits after all of your costs and allowances.
Most businesses fail to use all of their legitimate costs and a rarely aware of all of their allowances. This means that the tax man isn’t taking more than he should. You and your accountant are actually giving him more than he is due.
Easy areas that can be used to provide tax savings are:
Director’s salaries
Director’s loans
Dividends
Company allowances
Out of pocket expenses
Pensions
Why not reinvest profits back into the company to strengthen your business rather than give the money to the tax man?
These should be all of the tips that you need in order to produce improvements to your cashflow.
If you have questions regarding the best way to apply these actions or if you need help in the application of these, feel free to make contact.
It is action that produces results, not luck and not external market conditions. Actions.
George Marcou