Ask any small business owner what the main threat to their enterprise is, and the vast majority of them will reply ‘cash flow’. For such an important issue, one that can literally make or break a business, many of us don’t seem to have a grip on it. Here’s how to break the cycle and get out of a cash flow crunch- fast.
Raise Your Pricing
Getting money moving through your business amounts to just two things – increasing the amount of cash coming in, or decreasing the amount of expenditure. And the first place you should start is by raising your price list. To many small businesses, customer loyalty is everything and they worry that they’ll lose custom if prices go up. But think of it this way – most of your customers are won over by the relationship and excellent service you can provide as a smaller business. If price was their primary driver, they would probably take their custom to a larger outfit that competes on discount. So raising the charges within reason probably won’t make them go elsewhere. You can sweeten the deal with loyalty rewards for repeat custom as well – it’s a great way to hook future sales and get customers to recommend you to their friends and family in return for a small reward.
Tighten Up Your Terms
A huge amount of small business cash flow problems are caused by late payment from larger businesses, who have a lot more slack in their budgets. So set clearer, shorter boundaries for getting paid. If you allow the standard 30 day time frame, it can regularly be up to 60 before you receive payment. So why not shorten the leash to 10 days, invoice immediately on completion and add a clear due date. Use invoicing software to help you keep track of due payments and sent automated reminders. The sooner the money is due, the sooner you can chase for payment while still giving yourself some protective cushioning. It’s your business and you set the rules, so make your terms something that allows you to finance your operation better.
Time Your Payments
Conversely, make the other end of the transaction also work for you. Set up a schedule that allows you to keep track of when payments to suppliers are due- and don’t pay them before. Why have your capital sitting in their business before it’s strictly necessary? If the company you’re dealing with accepts credit card payments, even better. That buys you another 30 days on top of the payment deadline. Just make sure you keep on top of when things are due, and if you don’t have a good one, learn how to increase credit score immediately so that you can access the longest interest free periods and best rates.
Use The Power of Renegotiation
Use your business negotiation skills by working with vendors to achieve a lower price on the things you need to buy. Think about what else you can offer to make yourself a valued customer- recommendations to other clients or a first refusal on future contracts. Each agreement you make should be reviewed after a certain period to keep costs driven down.