Cash flow is likely top of mind as a small business owner because it is the lifeblood of any business. When you have a consistent flow of money into your business, you can invest in growth and pivot in times of surprise or crisis. Cash flow can be tight for many business owners, no matter what the economy looks like. Today we are discussing how to maximize cash flow so that you are better prepared to handle it.
Ask for a deposit or milestone payment
You could ask clients for a deposit or milestone payment if your product or service requires substantial cash up front. It is up to you how much you want to ask for in advance, and clients might want to negotiate, but a good starting point is to charge 25-50% of the total amount at the start of a project.
Encourage customers to pay sooner
Try to get your customers to pay sooner by providing an incentive. You can give vender discounts or give customers discounts if they pay within a certain amount of days.
Reduce expenses
One way to increase your cash flow is by cutting back on spending where you can. Look at your books and see where your expenses are being spent and identify if any of that can be reduced or completely cut out from your budget. Consider if there are lower cost options for certain products or services you use and negotiating deals with suppliers.
You might want to consider how your personal expenses impact your business either indirectly or directly and see where it makes sense to cut back.
Request more favorable payment terms from vendors
Getting more time to pay a vendor or supplier can be the difference between missing and making a payroll. Vendors value their clients and might be willing to extend their payment terms, especially if you are a reliable customer with a record of making timely payments.
Finance purchase orders
Some manufacturing or merchandising companies finance purchase order to buy inventory or materials. With purchase orders, the financing company pays the vendor directly—thus preventing you from having to pour a large amount of cash into something that will not produce an immediate ROI.
Increase margins
Two ways to increase your margins are by raising your prices or decreasing the costs associated with delivering your product or service. Raising prices is a real option if there is a strong demand for your product or service or if you have a unique product that is not available from competitors. Be mindful of how you price your product or service so your customers will respond well to it.
Sell or lease idle equipment
Consider selling or leasing your idle equipment to another company that could be rented for a lot less while the proceeds can be used to help bolster cash flow and fund business growth. If you have a storage center with your equipment, this will also help you save on storage costs.
Sell future revenue
A merchant cash advance is a viable strategy for consumer businesses like retailers and restaurants. It takes a loan that is repaid via a percentage of the credit and debit card transaction volume your business receives.
Turn down, shift or postpone work
Managing cash flow is about timing. You would have a consistent volume of work or sales to help manage cash flow over long periods of time. This might entail turning down or postponing work when you are maxed out or creating a plan for consistent volumes.
Sell invoices
Selling invoices which is also called invoice factoring, invoice discounting, or invoice financing is a flexible and quick form of business funding available for B2B companies.