Entrepreneurship is a game of expenditures, profits and revenues.
These three must be in perfect harmony with each other to sustain a business.
While it may be difficult to balance these three elements, it is doable.
There are countless of success stories out there to attest it.
The difficult thing is that, though your projections show a rapid increase in profits for the next four months of your business, you may not be around long enough to see it.
So what does this tell us?
Well, the challenge is to keep making enough money to stay running, no matter how rosy you see future opportunities for your business.
So how do you do it?
This is where the importance of cash flow comes in.
Your business and company’s cash flow must be optimized.
This however, doesn’t only mean increase your revenue (though it may be the biggest piece of the puzzle), but also to cut cost, speed up your invoices and earn good interest from various accounts to keep your business afloat.
So how do you really do it?
Here are some tips:
1. Fine-Tune the Pricing of Your Products and/or Services
While it’s true that we have to keep our products and/or services’ prices competitive in the market, it is also important that we don’t compromise our cash flow just to offer the cheapest price.
Raising your prices may cause your sales to suffer, there is that possibility and you need to be ready.
However, it is also not good to run on a preconceived conclusion without testing and finding out what the market wants in the first place.
This is extremely important, especially when you have physical inventory that you need to invest in.
Increasing the prices of your products also increases their perceived value.
Those who have not been taking advantage of the things you are offering may be more inclined to use them if they feel they need a larger investment at the onset.
If your products are too cheap, people may not take you seriously.
And if they’re too expensive, you will lose against your competitors as well.
Thus, find the middle ground and pin point the right price that actually boosts your cash flow without resulting in lost sales.
2. Give Incentives for Early Payments and Penalties for Late Payments
Invoicing is usually the most painful process for most businesses.
Sometimes, it requires a lot of back and forth.
If you constantly find yourself stressed in contacting and having to follow up clients who are always late in their payments, then maybe it’s time that you implement an ‘incentive and penalty policy’.
You can give discounts or rebates to accounts that are paid early or on time, and include interest to late invoices.
This kind of guideline will encourage your clients and customers to pay their obligations on time, which would definitely improve your cash flow immediately.
Also, you no longer have to constantly remind your clients about their obligations, giving you more time to focus on your business, rather than chasing accounts.
3. Re-negotiate Long-Term Contracts To Boost Cash Flow
If you have long-term deals with certain service providers and suppliers, maybe you can re-negotiate contracts with them to improve your cash flow.
Many providers welcome opportunities to change and re-negotiate contracts with businesses or companies they have established rapport with, or those they know they will work with over the long haul.
Approach these providers and talk about the most cost-efficient contract you can get for your company.
Some providers may not be open to changes in your account, but when you contact them you may realize you have things (add-ons or extras) you don’t need or never use, and getting rid of them (cancelling those services you don’t use) can improve your cash flow.
So there you have it.
If you found these tips useful make sure to let us know in the comments.
If you want to check out some cash flow mistakes to avoid, check out this article.