How Realistic is Your 2010 Cash Flow Strategy?
Ok, so we are getting 2010 well underway. That holiday rush is over and we’re all beginning to recover from the madness. But with 2010 moving full-steam ahead, what are strategies are you planning to improve your profits?
It’s certainly no surprise that last year created some pretty intense challenges for businesses everywhere, especially small businesses. Many were caught off-guard and unprepared and closed their doors as a result.
Do you remember hearing that warning when you got into business about how most new businesses fail? And why do they fail? Lack of capital.
In other words, they didn’t have a good cash flow strategy and they didn’t have a good back-up plan in place for those dark days that every business must face sooner or later. It is vital to have a financial cushion to help your business and it can come in handy during any number of situations: decreased revenue, increased costs, vital expansion, unforeseen expenses, etc.
But we’ve all heard this time and again, right? Now it’s time to take that lesson and apply it to the new year and to a new, or updated, business plan.
A couple of easy places to start that can bring INSTANT results are: 1) decreasing costs and 2) increasing collections (did you think I was going to say sales?).
But wait… all of the business gurus usually say to increase sales, not collections!!
That’s right. But increasing sales can vary dramatically depending on the type of business that you have. It could mean adding new products, new personnel, or starting a new ad campaign. A new marketing plan could cost one business $200 and cost the business down the street $25,000. And marketing takes time and thought. I’m talking about things that can help you see results TOMORROW.
Now is the time to sit down and go over all of your existing costs. I have yet to see a business that couldn’t tighten things up and see some good savings after really giving those expenses a thorough examination. Some lines aren’t selling well if at all – cut them back, put them on sale, or eliminate them entirely. Some distributors can provide the same items for less – weigh the pros and cons there and use the one that gives you a better profit margin.
Be creative. You can find cost savings all over the place if you look.
What about increasing collections?
It is often shocking to hear how badly some businesses struggle in this area. You don’t want to lose your customers, but you are having a hard time collecting on their accounts. It is possible to have a win-win situation here. Really… it is!
Despite what we’ve all been reading and hearing, sending accounts to collections is not the best answer. You know that you’ll lose that customer, you’ll lose the future income from that customer, and you will get pennies on the dollar for what they owe. Yes, the collections approach may become necessary at some point, but let’s try a different approach first.
Ever heard the term ‘payment plan’? Of course you have. You’ve probably set one up yourself at some point. This is the key to increasing your collections while keeping your customers. For the customer or client, you are showing that you understand the difficulties they face and that you want to go the extra mile for them. For you, that customer or client is going to appreciate your understanding and will be RELIEVED at this payment option. You’ll also probably see a lot of referral business as a result.
This type of approach can work for almost any business. One of our clients was carrying accounts and having trouble collecting on 40% of those accounts. After discussing a payment plan approach, he basically quit carrying accounts. Payment is now expected upon order completion (handcrafted furniture). For those few accounts that can’t pay the balance all at once, he now gets 50% up front on custom orders to cover his costs and allows paying the rest over time. Terms are set on an individual account basis. His A/R collections are now around 95-96%. Not too shabby. Even better… no one complained when he stopped invoicing.
It’s a new year. It’s time for a new look at the way that your business is performing. Do yourself a favor and take the time to really go over the books and see what’s happening with your bottom line. Make a few changes here and there to make sure that you will continue to see a healthy profit in the months and years to come. A little extra time spent now could save your some major headaches in the future.
