A successful business is all about the bottom line — are you profitable or are you losing money?
For many businesses, this can be tough at the start. Imagine starting a business, for example. Leasing a space, filling it with furniture, buying equipment and hiring staff all costs a lot of money. And cash doesn’t always come in the second you open the doors.
It’s a frustrating reality when you know you’re on the way to bringing in revenue down the line but you have to sustain your business until that happens. In fact, even established businesses can have cash flow issues.
There’s an answer to your problem — boosting cash flow
Having more cash on hand by using targeted strategies to boost cash flow helps keep a company afloat until it starts turning over more significant profits and paying for itself.
To increase cash flow, you have to find the right balance between spending, cost-cutting and other factors that contribute to the bottom line. PayPie understands that can be difficult to do without a little help or the right tools.
Seven proven methods to boost cash flow
These tactics have successfully helped others bring in cash in the past and can help secure your business’s future.
1. Know your options
Some ways to boost cash flow are intuitive, or they’re otherwise easy to discern on your own. If you’re a newbie, though, you might be better off with a helping hand as you endeavor to increase the liquid assets you have on hand. You can rely on a short-term lender or use software to highlight the areas in which you can cut spending.
For example, you might be able to take advantage of invoice factoring. This short-term lending option will have a factor pay you a percentage of an invoice. Then, they make it their mission to gather any outstanding payments. They keep a percentage, then give the remainder to you. Their initial payment provides you with the cash you need as does their follow-up on the initial invoice.
A cash flow forecasting tool helps you see the patterns in how the money is flowing in and out of your business. It highlights the areas that are draining your business’s cash flow and pinpoints where the cash is coming in — telling you where you can focus your efforts to increase your bottom line even more.
2. Sell unused equipment and inventory
The trick to understanding how to boost cash flow is to be extremely critical with every aspect of your business. For starters, take a look at your inventory. Anything you have left over that won’t be used in the next year should be sold as soon as possible — that is, unless you won’t incur any costs from keeping it that long.
Equipment should also be scrutinized. Outdated machinery or technology you no longer use can bring in a good chunk of change. Plus, getting rid of something that’s taking up space can free up square footage for a more updated piece of machinery. This can serve to boost your business’s productivity. Selling the old model can also bring in the cash you need to buy a newer version.
3. Take bigger deposits
Chances are good your company already requires a deposit for custom orders, large orders or with new customers. Without that guarantee, the client could back out, leaving you with highly customized items or a surplus of products that you’ll have a hard time selling to others.
With that in mind, evaluate how much you require as a down payment before you begin working. You can justifiably ask for half the cost of the total project before you start — if you do not require that much now, hike your commission rate. Not only will it increase your cash flow, but it’ll also ensure clients are serious about paying you when the project’s complete. They will want a return on their investment, after all.
4. Lease — for now
It might seem counterintuitive to lease since you know leasing means you’ll end up paying more for your space or your supplies in the long run. However, you shouldn’t buy things outright when cash is tight. Instead, see if you can lease your workspace or the equipment you need to make your business a reality. That’ll give you more cash to use for day-to-day expenses and, once you’re running productively, you can invest more cash to buy the items you need.
5. Scrutinize payment terms
You have money coming in and going out — how much time is there between these two events? Another way to boost cash flow is to evaluate the terms you share with your suppliers as well as your customers. If you’re required to pay the former within 20 days, but your customers have 30 days to pay for your services, then you have a considerable amount of time in which you’re reliant on your own cash.
You might want to reconsider the terms of payment with either end of your production process. Reaching out to new suppliers might help you find a bigger window for repayment. You might also see an even cheaper option that makes it easier for you to float between spending and receiving cash from customers.
Of course, your pre-existing supplier might be willing to negotiate with you, too. As long as they know you’re going to be a client for a considerable amount of time. Just make sure you’re smart about these discussions — take your time to find the right balance between your needs and your supplier’s needs. To that end, your clients might have to start paying for your services sooner to make the time between payments a bit easier on you.
6. Incentivize and penalize
In a similar vein, you might want to find ways to encourage customers to pay you ahead of schedule. On the one hand, you can come up with an incentive for them to pay early. A small discount is unlikely to hurt your bottom line, but it could make a big difference to clients. Knowing they’ll get this percentage off their bill will probably be enough to inspire them to get their payments in on time, thus putting cash in your pocket ASAP.
You might also consider implementing a penalty for customers who are routinely late with their payments. Adding interest to a standing debt, for example, will spur them to pay you back with haste. When they do, you’ll at least receive a little extra for your trouble.
7. Re-evaluate your prices
Selecting the proper price for your products is a delicate balance. Larger companies have their own tricks for doing it, but you might’ve gone with a simpler strategy — a number just enough to turn a profit, for example.
Unfortunately, undervaluing your products reduces the cash you receive per purchase, and it also makes your creation seem less valuable than it is. Customers and clients won’t take you seriously. If your number is too high, you won’t be considered, either. Instead, you’ll be lost in the fray to competitors who have chosen a better price for their products.
Don’t be afraid to adjust prices to boost cash flow. For example, slightly increasing prices won’t push customers away, but it will give you more money and add perceived value to your products.
Keep it flowing
No matter how great your business idea is, you need cash to keep it going. Implement any one of these tactics to boost cash flow and guide your business through any cash shortages.
You can also enlist the help of PayPie’s free cash flow forecasting to personalize your path to a healthy cash flow. No matter which avenue you choose, you, your customers and your investors will be glad you did.
PayPie currently integrates with QuickBooks Online to access the cash flow forecasting and risk scoring tools. Additional integrations are coming soon.
This article is informational only and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.
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