Over the years, I have shared with you many tips and tricks to improving your profitability. Things like raising pricing, focusing on your winning products and services and redesigning workflow and systems, all play a huge part in your bottom line. Today I want to address some ways that you can look at your cash flow differently. Here are six fast-action secrets to managing cash flow on a day-to-day basis.
1. Play the Float Game
Collect early. Focus on speeding up your collection process and try to get payments up front whenever possible (retainers, deposits, pre-payments, C.O.D, etc.) If you do have accounts receivables, establish a collection system and use a collections agency to speed up the process. If you are not already doing so, begin accepting electronic payments and credit cards.
Pay late. Slow down your payables to keep more cash in the business. Get favorable vendor terms and don't pay until the due date. Only take advantage of trade discounts if it doesn't hurt your cash flow. You can also consider establishing an operating line of credit, even if you don't need it.
The goal of the float game is to collect from your customers before you have to pay your vendors or employees.
2. Get Your Product Out the Door Faster
The faster your turnaround time, the lower your overhead cost per unit which leads to an increase in profit margins. Look at your systems and see where you can use technology to help increase your turnaround speed.
The goal here is to increase productivity and efficiency.
3. Learn the Art of the Upsell
Do you want fries with that? Use the art of the upsell or bundle to increase your revenue per transaction and per customer. This will vary based on your industry, but in general is costs more to acquire a customer than it does to sell to an existing one, so focus on repeat business for consistent predictable cash flow.
The goal here is to increase the lifetime value of your customers.
4. Keep Costs Variable
Keep your cash flow in check by minimizing the amount of fixed overhead in your business. Employ J.IT. management when possible (Just In Time) and use performance based compensation models to increase your margins. If it isn't a core function of your business, consider outsourcing it to someone who can do it faster and cheaper.
The goal here is to watch your margins like a hawk and stay on top of your cash flow.
5. Be Lean & Mean
As your business grows, it is easy to fall into the trap of a "lifestyler." But the most successful business owners are the ones that live within their means and keep as much profit as possible flowing to the bottom line. Begin by paying yourself in a tax-efficient manner and examine everything on your P&L to manage your effective tax rate (but don't spend your way out of a tax liability!). Another tip: use a cash-back business credit card to get money back on things you have to buy anyway.
Goal, keep as much profit as possible flowing to the bottom line.
6. Plan Your Cash Flow
The last tip to maximize profitability has to do with the way that you budget. During normal periods you want to set up your budget monthly, but during crunch times you will want to stay on top of your budget and cash flow weekly. Cash is required for profitable grow, so get to know your SGR (sustainable growth rate) and monitor if often.
The ultimate goal with these six tips: Never run out of cash!