4 Simple Ways to Improve Your Cash Flow

April 22, 2016 | Roger and Susie Engelau

In my early years of business ownership my cash flow was sporadic – even painful. I understand the pain of not knowing if you can pay all of this month’s bills. [p]

Nowadays I have a strong, steady cash flow. In my years of coaching business owners, I’ve coached many on how to get improved cash flow. There are many practical ways to get consistent peace of mind about cash flow.[p]

Here are 4 fast-acting, sure-fire ways you can improve your cash flow:[p]

 

1. Consider asking for a deposit up front

In some cases, you can ask the customer to pay 50% up front – for instance, if you sell equipment such as water softeners or computers. You can use that deposit to pay for the materials you have to purchase before you actually deliver the product. Then, you have the cash to cover your costs – and you can avoid carrying that cost on your books for 30, 60, 90 days or more.[p]

 

2. Focus on profitability

There are several ways you can focus on your profitability that can help improve cash flow. For example, creating workflows can help you improve your efficiency that can, in turn, reduce the cost of delivering your service.[p]

Even simple workflows can make a big difference. Here’s a quick example of what I mean.[p]

Imagine that you own a heating and cooling company. Today, your technician drives to the supply house between each job to pick up his supplies for the next job. This results in several trips per day. What if he planned to pick up all of his supplies for the day first thing in the morning – in just one trip?[p]

In this example, your average labor cost to fix an air conditioner is $50, or about 2 hours work. In turn, you receive $90 for that service. If a workflow process helps the technician reduce non-productive hours by 40 minutes, then you can decrease your $50 cost per job by $15.[p]

If your company completes 20 jobs per week, that adds up to an additional profit of $300 per week – which is $15,600 per year![p]

By reviewing just a handful of the key work processes in your business, you can find these opportunities for labor and material savings. These seemingly small savings in a highly repetitive process can quickly add up to large labor savings – which translates directly to profit. Just think of the savings you can realize if you can get everyone in your organization into this mindset.[p]

 

3. Re-evaluate your ads

A good rule of thumb is this: only run ads that make you money. So if your ads aren’t making money, it may be time to stop running them.[p]

For example, say an accounting firm pays $1500 a month to place an ad in the local newspaper. That ad brings in 10 customers in the first month, and each of those customers spend about $100. So, you’ve spent $1,500 on the ad – and only received $1,000 in revenue. You’re down about $500.[p]

In this scenario, you’d have a few options. Since the ad is giving you some new business, it might make sense to try a few more months to see if business starts to build over time. Or, you could make a few changes to the ad to try to make it more successful.[p]

Sometimes, it’s hard to know if an ad is directly making you money or not. A good way to find out is to ask each of your new customers how they heard about you. Was it from an ad? A friend? A colleague?[p]

If you’re investing in ads or marketing, continue to test and measure the results of your efforts to ensure you’re getting a good return on investment for every marketing dollar. If not, it might be time to re-evaluate your spend.[p]

 

4. Raise your prices

Sounds scary, right? It’s not – it’s pretty simple math. Most people are afraid that if they raise their prices, they’ll lose customers. So, some companies haven’t raised their prices in years! Depending on your industry, a price increase every 2-3 years is not unreasonable.[p]

And if you’re still afraid, I can tell you this: in all the times I’ve encouraged someone to raise their prices, it has never once resulted in a customer complaint or loss.[p]

Here’s an example. I asked one restaurant owner what item she sold the most of and she replied, “cheeseburgers.” I found out that she sells about 200 cheeseburgers a week, and that she’d been charging $5.95 since 2007. I suggested that for just a month, raise the price to $6.75 for just one month, and see what happens.[p]

So, she increased the price. That month, she sold the exact same number of burgers, despite the $.80 increase. This added an additional $160 in revenue per week. [p]

At the end of the month, she continued selling cheeseburgers at the higher price. Six months later she told me that she hadn’t even received one complaint about the price increase – and, she’d even raised the price again to $7.29! By then, she was selling an average of 225 burgers per week. So at the end of the sixth month of increased prices, she was making $1.34 more per burger – an increase of $450.00 per week. That’s $1935.00 per month. That year, she saw a revenue increase of $23,000 – all thanks to a modest price increase on just one product.[p]

 

These are only a few of the strategies I’ve recommended to help improve cash flow. Are you experiencing problems with maintaining cash flow in your business? I promise, it’s okay – we’ve all been there. I’d be happy to listen to your situation and offer a few suggestions. I have a few times available this month – click here to schedule a time for us to talk.