It’s obvious that positive cash flow fuels your business, but where do you turn if things start to ‘dry up’?
Many business owners immediately turn to their bank as a safety net, however, those can be more of a trap than a lifeline if you’re not careful - Remember, there’s no such thing as free money!
Managing a business’s day-to-day successfully with even excess financial resources to work with is challenging, let alone trying to keep afloat with limited cash.
Let’s look at how we can find money essentially hidden within your business, often just by making a few small process-related changes.
Overhaul your clients’ conditions
Sometimes there’s money looming or waiting to be paid by customers taking advantage of your leniency. This is a common situation for small businesses in Australia, especially for new startups offering such arrangements to secure clientele and get off the ground.
We’re oftentimes so incredibly busy with the initiation stages of a business that we tend to forget about the most important aspect; positive cash flow.
Here’s what you can do to get clients paying faster:
Prioritise invoices - Dedicate a day each week to drawing up and sending out invoices as postponing it only allows customers to procrastinate even more with their payments.
Change payment terms (at least for new clients) - Clearly outlining a 7-day or 14-day payment deadline is reasonable. You could even begin charging late fees or interest, guaranteeing you either receive payment in full promptly or you’ll make a little extra - it’s a win-win!
Reach out to clients with unpaid invoices - Never just assume payment is on its way or lingering in the banking/transaction system. Sometimes clients just overlook their invoices or accidentally forget to make a payment.
Offer discounts for early payments
Encourage your clients to pay you upfront or more efficiently by offering incentives in the form of a discount when sending out invoices.
Customers are more likely to prioritise your invoice over others if they know they’ll save a little.
Be sure to calculate whether or not the discount is worth the immediate payment and what you could be doing with that early cash before introducing a figure or percentage.
Look for discounts within your bills
Pay your accounts that offer on-time discounts (like the ones you’re about to offer), first. Over multiple bills, this can add up to tens of thousands of dollars in savings every month and can spark serious movement in the positive cash flow direction.
Speak to suppliers, service providers or other utility companies about possibly getting a discount for prompt bill payments where you’re yet to receive any incentive for your years of loyalty. They can only say ‘no’, perhaps making that decision to switch to a competitor even easier!
Declutter your inventory
Most business owners have unused or unwanted stock taking up valuables storeroom or warehouse space, which is practically the definition of finding money within your business.
Australian small businesses generally face either one or both of the following problems at some point in their ventures:
An overstock problem - Storing high-value items that could be easily purchased when needed.
Holding onto too many slow-selling products without stocking an abundance of high-turnover products.
Selling off stock in the form of a sale may far outweigh the benefits and costs of keeping it for long periods in the hope it sells at full price.
In some circumstances, it might even be worth contacting suppliers and asking if you can return unutilised or unpackaged items for a refund or credit on your next order.
Review prepaid expenses
Prepaid expenses often relate to recurring bills such as insurance or electricity. You’re likely paying these quarterly or annually, but have you ever compared pricing structures to see how much cash you can free up?
Sometimes it’s worth paying a fractionally higher bill weekly to spare up some cash than pay huge lump sums quarterly and be left pinching pennies for weeks.
These days, it’s not uncommon for utility services, internet service providers and other businesses to offer flexible payment options to keep customers.
Review your assets
Assets like second vehicles, multiple office spaces or storage premises consume more of your business’s income than you realise, especially over longer ownership periods. Revising these assets and your options as to what to do with them can easily provide you with some quick cash.
If you find all of your assets aren’t being fully utilised, you could:
Sell and replace them with hired, more affordable products, or
Lease assets on a short-term basis as required
Negotiate more flexible payment terms with suppliers
It’s possible that your suppliers could provide you with a new funds source. Requesting new or more flexible payment terms like an instalment system. This might allow you to sell stock before having to pay for it. It’s definitely worth a shot and could save you big dollars every month.
Here’s what you could try setting up with your suppliers to optimise stock levels, minimise wastage and maximise positive cash flow:
Review your re-orders - Confirm re-order levels so you never run out of high-turnover lines while purchasing slow-selling products less frequently.
Setup better defaults - Ensure you’re always only ordering what you need on all automated systems.
You could also try incentivising clients to order more with discounts, helping you move stock levels at increased rates or possibly introducing minimum order quantities for more secure estimates of what you'll need each week.
Contact Ironbark Industries Bookkeeping today to discuss our bookkeeping services, your specific requirements, or any other financial management enquiries.
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