Cash Flow Management Tips
We all love money, but most don’t really love cash flow management stuff. Despite being a pain, ultimately cash flow management will give you more money. In no particular order below we will go through 10 fantastic tips around how you can have better cash flow management in your business.
Number one is outsource things where possible. You might think that doing everything yourself and keeping it all in-house is the way to go, but it has been shown time and time again that it is not. Outsourcing gives you a huge advantage. It increases your accountability because you have a position to point you finger at when something goes wrong, and it also increases the brain force of your company. You know the voodoo that you do pretty well, but the reason you’re outsourcing, they know even better than you know. Therefore, you should be outsourcing it. It’ll save you countless hours and ultimately bring you more time to be able to do the voodoo that you do. So, keep that in mind. Outsourcing is a fantastic way of increasing your cash flow.
Changing Your Payment Terms
One of the other ones that I think is fantastic is changing around your payment terms. Drop your terms down to Net10. Now, a shorter pay period doesn’t sound like it’s going to make that big of a difference, and obviously depending on the business that you’re working in, this may or may not apply. If you’re selling pies, probably don’t increase it to Net10. That’d be stupid. But maybe give them a discount card or something like that if they are to buy multiple pies at once, or if they are to be a loyal customer. That’d be a great way to increase your cash flow. Having said that, if you’re doing government contracts and very commercial things, then it’s a different kettle of fish again. They may not really respond well to Net10, so your mileage may vary on this one, but ultimately you want to be able to give them a shorter payment period if you’re able to do that in your industry. This means that you’re able to get cash in your pocket sooner. You could also try change around the payment gateway that you’re using to a different merchant facility that gets the money into your bank account a little bit quicker. This could end up making a huge difference. I did an example a couple of weeks ago where we went through the process of what it would cost if you had $10,000 outstanding for 30 days every month, always outstanding. It was always paid but it was always 30 days later. The results were fantastic. It worked out to be about a carton of beer a month that you could have extra in your pocket just by changing around your payment terms, so that’s a big one.
Direct Debit Requests
The next one is stemming from that, and that’s setting up direct debit requests. Instead of waiting for your customer to pay, a fantastic way to manage your cash flow is by making you the responsible one to be able to pull money from their bank accounts. You set it up in your payment terms, so maybe you invoice on the first, it gets pulled out on the 10th or on the 9th or whatever it is, and then you end up getting the money in your bank account, reliably every month so you know that it’s there. It’s removing a headache and heartache for them and it removes a headache and heartache for you. Everyone wins and then you have a reliable cash flow. If you aren’t doing this, there’s some fantastic tools out there that allow you to do it. One of the ones that you could be using is IntegraPay, Bill Buddy, or even PayPal. To be honest, we use a combination of all three of those internally, just depending on what it is exactly that we are doing. Keep that in mind, because it makes a huge difference in making sure that payments are coming in on time. You’re not sending out overdue notices, because the payments are coming in on time, and it means that you know reliably when money’s going to be there. There’s not a question mark next to it.
Offer Pay On Time Discount
Now, moving on from that is incentivising for the people that don’t want to sign up for the direct debit by offering a pay on time discount. Now, the reason I say this instead of offering a fine for paying late is fines aren’t well received. You’d be better off offering a discount and that is a positive frame around the same problem. The way I’d suggest doing this is increasing all your prices by said discount amount, so maybe it’s 5%, 10%, or 20%, and then just have in your Net10 terms that if you pay before this date, this is the rate. This means that they get to continue to pay the normal rate and you get either more money for them paying later or you get your invoices paid on time. This is a fantastic win/win for the cash flow management.
Selling in Bulk
Your next one hopefully you’ve already got as an offering. If you’re selling a service where you’re selling per hour or per month or whatever the frame is that you’ve got around the service that you’re selling, if you can package that up for them to be able to purchase it in bulk, you’re going to get people that want to do that. That’s great for their business, because if they’re doing that before tax time’s up, they’re able to offset that in the previous financial year which is an advantage to them. If you’re able to sell whatever you are selling in bulk, you have a bulk amount of cash that’s sitting in there. If it’s in an offset account, it means that you’re paying less interest against your house or whatever you’ve got that offset against. Either way, more money in your pocket, less money in theirs initially, but it’s a win/win for everyone. The reason I say that is it means that there’s less bookkeeping that needs to be done by all parties. There’s less administration overhead. Because of that, it’d be a very sensible idea to offer them an incentive to incentivise for them to buy in bulk. Say for instance if you were to be giving the service for 10 hours, if you normally bill per hour, you give them 10 hours in block amounts and maybe you give them a 5% discount. Or, if they’re paying for something per month, ask them if they’d like to pay per year and give them a 10% discount or a free month or two free months or whatever you think would be of value to them, and of value to you. You don’t want that to cut into your profits, but you’ve got to keep in mind that that money is coming to you right now, and you’re earning interest ON that money right now for the next 12 months. You also know reliably you’ve got that customer for 12 months. There’s lots of great reasons why that will improve your cash flow tenfold.
Keeping Expenses in Check
Number six is keeping your expenses in check. You’d be surprised how many places we go into and we just see people throwing money at stupid shit. We go in, we see phone systems that they’re paying $600-$650 a month for. We jury rig it all around, get it all fixed up and we drop it down to below $100 a month with no locked in contracts, and they are just like, “Whoa, geeze, you’ve just saved us thousands of dollars a year with just a small conversation.” It’s a conversation you guys can be having with any of your current providers, but the problem you may have with your current providers is they’re ripping you off or they aren’t going to give you the full story. We always suggest for our customers to look elsewhere all the time to see what they can find. See if people are offering the same things that either we’re giving away, or that they have from other suppliers. We had a business that we were dealing with in Brisbane and the service they were offering us was costing us nearly $1400 a month. We’ve been with them for about 10 years so we did a bit of a shopping around. We found the same service for $465 saving us, that’s right ladies and gentleman, over $900 a month. That’s a $10,000 saving a year that we had from having a maybe two or three hour discussion between the different suppliers and vendors that we rang around about. That gave us a $10,000 saving. Money saved on expenses is money you don’t need to find through new customers. Definitely make sure to keep all of your expenses in check. Most suppliers are going to be able to give you a little bit of leniency there, even if it’s not directly on cash. We ourselves for our customers offer fantastic incentives for finding other businesses that they work with and referring us on. Now for us that could be anything from several hundred dollars to a few thousand dollars that we give someone for finding a customer. It’s not all about reducing your prices down if you’re on the other side of this. It’s definitely about making sure that you’re adding value and you’re having everyone grow together. Giving everyone the tools to empower themselves to be able to do the voodoo that they do, and make sure that you’re able to grow, they’re able to grow, and you’re able to hopefully keep your cash flow in control.
The next one is definitely easier said than done. It’s around automating processes in your business to remove employee, financial, and time expenses. You’ll notice if you’ve got more than one employee that everyone doesn’t have the same go-getter attitude that you have. You want to make sure that they do, but you know honestly, they’re never going to. It’s your baby, you’re passionate about this. They’re never going to be as passionate as you. Try automate some of their tasks and let them work on things that they enjoy doing more, or bring other things and other aspects into your business that you’ve been wanting to do for years. If you’re able to remove repetition and automate some of those processes, you’ll be ahead of the pack and you’ll have the advantage over your competitors. That’s what you want to do. You want to make sure you have the advantage over your competitors, and you want to make sure you’re running a lean, mean, growing machine. As I said, get a business advisor in to automate your process and see where that ends up with you.
Explore Other Technologies
Talk to any of the people in your business about the technology they’re using or about the processes that they are following and see if they can be adjusted. Now, when you’ve been a leader and you’re telling everyone how to do things, a lot of the time people aren’t talking back to you on how things can be done. They’re just listening to you because you’re telling them. Empowering them to be able to go out and search for different tools that might speed that process up could be great for cash flow management. Maybe you’ve got some quoting extraordinaire and they’re using some arbitrary Excel, Word, monster system that’s not really working that well and not very efficient. You explain to them to go and have a look and they might find tools such as Proposify, or other different quoting tools that speed up their process and speed up their deliverables. Giving them the power to find these tools will give them the power to own the project of implementing them, and they’re going to love the whole process. It’s win/win for everyone, and ultimately, that’s going to affect your cash flow and that’s going to affect it in a positive way, which is what we want.
Number nine is building on number seven. Look at where time is spent and if there’s a process that takes a long time, give it to someone else in a different area of your business to look over it. One of the best things about our business internally is we have people from different areas and from different walks of life. We have people who are in their early 20s, we have people in their late 40s and we have people everywhere in between. We have advisors that come in that are nearly in their 70s. We’ve got people that are giving us advice from everywhere. It goes without saying, everyone knows the old story that NASA spent millions of dollars developing a pen that works in space, but the Russians used a pencil. There could be something very clear that you’re missing, very obvious, that you’re missing in a process or in business. Dick Smith had a great attitude towards this. Any member of the business, anyone that was a staff member, regardless of your level of management or wherever you sat in the hierarchy, you needed to be customer facing for at least one day a month. You do this to make sure that you don’t lose grips with what’s important in the business. That is a great attitude to have and we use that same model in our business. One day a month, if they’re lucky enough to get on the phone with me, I’ll help them out with their support requests, and that gives me an idea of their feedback, it keeps you front of mind with the customer, and it allows us to change the direction of where the business is going.
If you’ve got a team and you’ve got multiple people in different areas, you want to make sure the engineering team and your operations team and your marketing team are all building your products together. In doing this, you might find that an engineer has a solution to a marketing problem that you wouldn’t have seen or otherwise thought of. Maybe you weren’t aware that the product that you’re selling could even do something that it’s doing, so making sure that you are sharing all of your knowledge between all of your team members is very important.
Get Your Name Out There
Give reasons for your customers to spruik your message. Make sure that your product is a product that encompasses the message for them to be able to market for you. Gmail pay very little to be able to have everyone use their email service, because it’s such a great deal that they’re able to have the people tell everyone else about how great it is, and everyone else markets the product for them. In this situation, the product although appears to be email, you are actually the product and then they’re using the emails and the data that’s coming in through Google Adsense and the Google AdWords Networks to be able to then push out and market and make profit from it. You need to make sure you’re able to encompass a similar model where your customers are spruiking the message about how important your product is to them. If you do this that’ll affect your cash flow tenfold. If you don’t know what your customers want, join a network marketing group, talk to them, sit down for a network breakfast or something like that and find out what it is that they do and how your product could help them out. There’s all sorts of different network marketing stuff, depending on if you’re a small business that’s been around for six months, or you’re a big business that’s been around for 20 or 30 years, there’s something out there for you.
Time for a bonus one! Surprisingly, give yourself time to review everything in your business. This is by far the best tip. A health check to see where your business is at can save you thousands. I know myself it has saved us thousands. Just the example I gave you earlier by ringing up that vendor saved us thousands. Keeping the mobile phone companies in check saves us thousands. Keeping everything in check and setting up a schedule in your calendar for every few months to have a look and go over everything. I’ve got this as show me the money, and it says all the different things that I can go through. Then, at the end of the financial year, I have another list of all the different things that I can prepay forward. That could be investment properties or any other software vendors that I already know that I can prepay those forward and I save some money. That gives me more cash flow for next year, although it’s kind of in a sense converting OPEX to CAPEX. You’re ultimately going to have more money at the end of the day.
The Final Word
I hope you’ve enjoyed this. We’ve covered off on a lot of information so if it has helped let us know. Stay good!