Learning new ways to improve your cashflow isn’t something that’s hard to find information on. In fact, if you go on to Google and type in ‘cash flow problems’ there is plenty of content! So, I am in no stretch re-inventing the wheel. However, with the searches my biggest concern is that most outline that the implementation will see ‘immediate’ improvements. This is where I struggle because, unfortunately, this isn’t usually the case because even through you may see some minimal improvement initially, you need to be prepared to feel the cash flow pain for a little bit longer.
The following actions outlined in this article are practical, trialled and proven personally as the cashflow techniques used in my own business. These five tips and tricks are guaranteed to fix up your cashflow moving forward.
Five Tips To Improve your Cashflow
Finance Options (short to medium term solution)
If you’re struggling and you can’t see the light at the end of the tunnel, a finance injection could do the trick. Each situation is different, and it is best to get the advice of a broker or your advisor. If you do decide to go down this path, I 100% recommend budgeting and cashflows to be done immediately (See item 2).
Your options here are:
- Short term business loan;
- Long term business loan (definitely need equity);
- Overdraft against your bank account;
- Debt (Factoring) Finance.
Budgeting & Cashflows (ongoing)
Having a budget and cashflow forecast means that you will know exactly how your business is tracking. If you do not have a budget and cashflow forecast, you will have no idea when or if you can trade out of your bad cashflow. Plus, having your cashflow sorted will help with the following tips.
If you don’t have a budget and cashflow in place, you need to get this done as soon as possible, so you can identity:
- Key areas such as revenue, cost of goods, expenses, taxes and cash;
- If your current business model is profitable or provides you with the remuneration you desire;
- Where you are losing money;
- What equipment investment you need to make and whether it should be funded with cash or debt;
- What strategies you can implement to improve on your business.
Change up your Business Model (medium to long term)
Once you have your budget and cashflow sorted, there are levers that you can shift in your business to improve profitability and cashflow. You need to have a budget and cashflow in place to truly test these but simply tweaking the numbers on paper will help see results medium to long term.
The main tweaking areas include:
- Increase pricing;
- Cut unnecessary expenses;
- Implement system and process change to further clean up expenditure (this may be a necessary expenditure now something which can be challenge that against out budgets);
- Consolidate debt (if applicable);
- Changing debtor or creditor terms (see items 4 and 5 for more detail);
Debtors & Clients (medium to long term)
If you are a small business owner, we all know the pain of debtor chasing. After all who can honestly say ‘I love chasing my clients and customers for cash’. If you said YES, you’re are rare breed. It’s tough. I hate it and my staff hate it. But, unfortunately, debtor chasing is part of being paid and, to some degree, necessary. It is not bad to chase your cash!
Not all business can achieve all the items I have outlined below, but don’t be afraid to test them out. Understand that your business can’t survive without cash. You have some great clients who depend on your business, don’t be afraid to make changes that will stop your bad payers from putting you in a bad financial situation which leads to you to closing your doors.
Below are a few items that I’ve implemented to help with debtors:
- Change your payment terms. If you currently have 30 days, change it to 15 days. You’ll find people will go from paying you in 60 days to paying in 30 days;
- Change your point of sale. Rather than putting on account, have them pay on completion or upfront. There is plenty of variations here, and you’ll be surprised at the positive reaction (overall);
- Draft up your terms and conditions and have your clients sign off on them. If they breach them, penalise them;
- Incentivise your clients to pay faster. An example for us is that we provide a 10% price reduction for upfront payments;
- Outsource your debtor management to a third party . By outsourcing to a service or a software, your debtors are kept up to date and regularly chased. The software providers I have tested include debtor daddy and ezycollect . We saw improvement with outsourcing this task.
- Write off your bad debts . Don’t lie to yourself anymore, write off bad debts that will not be recovered and get rid of those clients. The time, resources and mental stress of bad clients is not worth it.
Creditors & Suppliers (medium to long term)
As a small business owner, just remember that every creditor you have is a debtor to them. You need to tread carefully because if you’re being strict on your clients, you need to ensure you are being respectful to your creditors and suppliers.
The best way negotiate here is by talking to your creditors or suppliers and request more favourable terms or negotiate better pricing in exchange for:
- Commitment to a certain level of purchases;
- Long term improvement to you paying (once cashflow improves);
- Strategic relationship (market their business in exchange).
Unfortunately, improving cashflow isn’t something that happens overnight. However, with the right attitude and tools, it is definitely achievable. With a combination of short, medium and long term changes, plus having a realistic budget and cashflow forecast, your cashflow will be where you want it in no time. As a small business owner, I know that cashflow can sometimes be a struggle, but I’ve found that having a plan and someone to use as a sounding board for ideas always helps.
If you want to know more about your cashflow and how you can improve it, feel free to reach out by emailing email@example.com or calling on 07 3367 3155