Improve Cash Flow
Immunize your business against Covid 19
Ensure Your Liquidity Short Term
You need the air to breathe. Your company needs the cash to stay in business. The best business without money is worthless.
1. Check whether you are eligible for any of the governmental aids or grants. To submit for this kind subsidies you need your financial business figures. If you don´t have your figures ready seek help by a professional accounting firm.
2. Negotiate a loan with your house bank to make sure you have sufficient liquidity. Do this as soon as possible. If have you good business figures you´ll get better conditions for a loan.
Secure Your Ability to Deliver
3. Make sure your business can bypass any lock down that might come. A restaurant can deliver meals and a tax adviser can meet his clients via zoom or skype. So there is no need for customers to come into your premises.
Re-Evaluate Your Pricing
4. The first action is to fine-tune the pricing of your products and services.
Are you selling your products or services for too little? Can you increase prices by 3% or 5%?
You may be concerned that your sales will suffer if you raise your price too much. That is always a possibility, but it’s best not to come to any preconceived conclusions without first testing and finding out what your customer is really willing to pay. This might be more than you are assuming.
When you increase the price of your products or services, their perceived value also tends to rise. Customers who haven’t been taking advantage of your offerings may be more inclined to make use of them if they require a larger investment at the outset.
If your pricing is too affordable, you won’t be taken seriously. But if your pricing is too expensive, you will lose some business to competitors. So, you have to recognize that a lot of margin sits in the happy middle and that your task is to find a price point that helps boost your cash flow while not resulting in lost sales.
5. If you not already selling online, what does it take to start selling online?
6. Think of your current customers: Evidence suggests it costs from 6 to 10 times more to attract new customers than it does to sell to existing ones – maybe you need to focus on your current customers first?
7. Make sure customers can contact you. Answer every email. If you do not answer your business emails within hours, your business partners may assume you are out of business…
8. Make sure you can reach your customers by social media. Your customers might be there already. So your customers do not need to come your premises if they are worried about infection.
9. Can you utilize subscription sales? If your product or service is regularly consumed and needs to be repurchased several times a year, institute a subscription program in which customers prepay for the product and delivery.
10. Ensure you know your potential customer and ensure you know what customer’s problems you solve by your product or service. It might be a good idea to workout a customer avatar. The more you know who your customer is and what your customer wants, the better you can make an irresistible offer. A more focused target market results in less marketing expenditure and more clarity for potential customers in that market.
11. Measure your marketing results: Know where your customers are coming from – so you can redirect the money to areas where it has a more positive impact. Consider your cost per lead.
12. Upgrade your online marketing: Many websites are developed with information of the business and not much else. You need to entice the customer to buy, so there needs to be a strong ‘call to action’ for them to contact your business.
13. Use a CRM system. Make marketing regular. This is critical. If you promise a monthly newsletter, then deliver on that promise. If you know how to reach your customers and understand their buying habits, you can develop marketing activities to encourage returning.
Upgrade Your Organization
14. Avoid fixed cost. Stay lean and flexible. Automate whatever is possible. Outsource instead of staffing.
15. Only pay commission when the payment is received.
16. Reward staff who improves cash flow, such as exceeding sales targets, lowering expenditure or pay commission on collection of customer’s payment.
Speeding Up the Inflow
15. Convert sales into cash quickly – and enlarge the spread between inflows and outflows to build a cash cushion.
16. Invoice fast, deliver products as soon as they’re ready for shipment, and invoice mmediately after sales. Learn how to automate invoicing.
17. For larger orders: Request a deposit – it is always a healthy business sign when you have optimum working capital available.
18. Provide easy payment options: Give your customers a variety of payment options, such as paypal, apple-pay, google-pay, credit card payment and direct deposit into your bank account and even debt collection.
19. Provide early payment incentives as discounts, but make sure you don’t lower your profit too much.
20. Get a process in place to follow up outstanding payments regularly.
21. Have procedures in place for quick resolution of customer disputes that could hold up payment.
22. Invoice factoring can help to speed up cash flow. You sell your unpaid invoices to an invoice financing company in exchange for a certain percentage of the value (80-85%) up front. But be aware, factoring leads to a lot of tax implications.
23. Recognize “Scope Creep” and Use Change Orders where applicable: Any change in might enable you to seek extra payment for the ancillary work performed.
Optimize Stock and Suppliers
24. Do you have a good, long-term relationship with your vendors and suppliers? Consider working with them to renegotiate prices, credit terms, and/or secure discounts for bulk orders, both of which can cut costs.
25. Make full use of your terms and conditions as this equates to an interest free loan.
26. Move aged stock: Replace slow-moving and obsolete stock with stock that has a faster turnover.
27. Monitor stock levels: Track the movement of your stock and have processes in place to identify when new stock should be ordered.
28. Just in Time stock orders: Find suppliers who’ll provide you with stock only when you need it – that way you won’t waste money paying for stock that’s sitting in the warehouse or storeroom.
29. Excess inventory can quickly become obsolete and worthless as customer favor might change and new products are introduced. Consider selling any inventory which is unlikely to be solder the next year unless the costs to retain it are minimal and the proceeds from a sale would be negligible.
Rethink the Asset Management
30. Outdated, over aged, and non-working equipment takes up space and ties up capital which might be used more productively. Older equipment will usually have a book value equal to its salvage value or less, so a sale might result in a taxable gain. This gain needs to be reported on your tax declarations. If you have to sell below the book value, you will incur a tax loss, which can be used to lower other profits of the company.
31. If you need assets, consider leasing to ‘smooth’ out cash flow if appropriate. These days you lease nearly everything from cars, computers, office furniture and much more.
32. Is it necessary to have the asset continuously available or can it be rent on demand: Need a business car all the time or can you rent a car once needed? The big car rental companies offer very good corporate rental agreements.
33. Buy used equipment in good condition that can generally do the necessary work as well as a new piece of machinery. You may be able to buy high quality, used equipment for savings up to 80% off the price of new equipment, without a comparable degradation of capability.
Get Real Time Financial Reporting in Place
34. Make your accounting to provide financial cockpits with cash flow forecasts regularly. Using cash flow forecasts you can identify any potential cash flow shortages in the immediate future. Running ‘what if’ scenarios you can determine your cash flow cushions in certain circumstances, such as decreasing sales.
Working with financial cockpits helps you to optimize your profits as you can analyze the profitability of your products, services, projects, customers…
35. Use any surplus cash and invest in interest bearing bank accounts. Interest-earning checking accounts are available at most banks today, albeit with a minimum balance requirement. Since interest rates on these accounts are low, securities accounts, precious metal, real estate, or money market accounts might keep the bulk of your funds. Transfer the necessary money from higher-paying accounts to your business account to meet your cash forecast.
You might wonder why I haven’t mentioned saving with a word so far. Because it is my firm conviction that the management must take care of higher sales. If the management is primarily concerned with saving, cost-cutting easily can become an obsession.
Saving is absolutely sensible. But in every organization, there are employees who can recognize and realize saving potetials. And there are external service providers such as insurance brokers who can do a good job in reducing costs.
At the same time, an absolute sense of proportion must be maintained when saving money. If employees are forced to switch to supposedly cheaper tools, primarily cheaper IT, motivation and thus productivity will drop. In the worst case, your best employees quit.
For this reason, increasing sales revenues is the primary task of the management and NOT cost-cutting.
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