While it takes a lot of work just to get a business started, much of that work is made moot within the first few years. Why? The reason being is that most businesses fold within five years. The real secret to growing a small business is by increasing your cash flow. Did I say that loud enough? Cash FLOW!
While that might seem like an easy task, meant for your sales department, it’s more complicated than that. Here are four of the most important secrets to growing your business by increasing your cash flow.
1. Get Your Assessment Together
You need to have a solid grip on where your money is currently sitting, where it’s headed, and where you should put more investment in the future. The best way to do this is by creating a strong forecast of your business with your accounting department. While the cash flow might not be that strong, a powerful forecast is going to offer you the chance to make predictions and get in front of trouble.
Small and medium businesses all want quick growth. That is a no brainer. For that to happen, you need to be willing to invest and have the capital to do so. The costs of growing quickly can be massive. More sales are great, but you need people to package product, deliver it, and deal with unsatisfied customers.
All of that money gets invested upfront before you get anything back. While it’s most likely going to come back in spades, if you’re not ready for the initial investment, you don’t get to enjoy the results. Cash flow means that cash goes in both directions, at least for a time in the life of your business.
Your forecast doesn’t need to be an intense and overwrought set of research. It can be as simple as a paper calculation of where your money has been going, where you need to invest in the future, and where you can find increases.
2. Mind the Gap
The gap of time between when you pay a vendor and when a customer pays you might not be ideal. This is personally why I am a proponent of collecting before services are rendered. If it takes you a month to get paid but you only have two weeks to pay your vendors, you’ll always operate at a kind of deficit. However, you’ll catch up over time and be able to consider the cash flow as more or less even when you account for this gap.
Look at the terms that you offer your customers and perhaps decide you need to close that gap. If you change your customers’ terms to a two-week payment gap instead of leaving it at a month, you could start to settle out sooner. Also, if you’re expected to pay within a two-week window, it’s fair to ask your customers to abide by the same.
You could be missing out on a discount in some cases if you pay your vendors sooner. Some vendors will allow you a month to pay but charge you a fee if you wait a day longer. They might require things by the first of the month but that might not coincide with your pay schedule, so make sure you’re not losing out.
Paying fees and surcharges for no reason can be accounted for just by changing your billing cycle.
3. Enforce Your Rules
If you’re thinking that you need to have a different system in place to ensure that you get paid, then you need to be ready to enforce that system.
So…if you don’t get paid, what kind of collections activity do you take? If you don’t take any at all, you might be missing out on the opportunity to implement a system to improve your cash flow. While you want to be on good terms with your customers, you need to make sure they take you seriously when you bill them.
For companies that don’t have any real way of holding their customers responsible for not paying them on time, it’s time to investigate collections. While you don’t need to implement draconian rules for getting paid or adding fees to customer bills, you should start setting up a system for penalties. When there’s a pay dispute, you need to have a policy for getting the payment resolved quickly.
Most business owners want to have a positive relationship with everyone they work with. It not only makes life easier but also ensures a continually improving relationship. When you get along with all of your vendors and colleagues, they’ll offer you discounts, first dibs on things, and the chance to grow together.
4. Get Everyone On Board
As improving cash flow is good for everyone, make sure everyone on your staff understands the importance. When every employee understands the importance of improving cash flow, that means that they’ll be more likely to hit targets. Let them know that you’re serious when you set collection targets. Teach your team to run through the terms with new clients so that you can grow.
The more you grow, the better the service you can provide. The better your service is, the more you’ll grow. It’s a win-win.
Set revenue goals for all of your sales staff. Integrate their tools and software across departments so that everyone sees when you actually get paid from a sale. Everyone needs to be connected to ensure that you hit the goals that you need to hit.
When people have a target, they’re also more likely to work together to meet their objectives.
Growing a Small Business Is Challenging
While it might seem like it’s easy to increase your cash flow, that is not always the case. You need to be prepared for tough days and days when it seems hard to reach your goals. Those make the good times sweeter, as you remove all of the obstacles that keep your cash flow from moving.
If you haven’t gotten yourself an accounting professional yet, check out our list of reasons why you need one. Don’t forget to share this blog posts with your fans. Let everyone benefit!
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Until the next time,