A business’ cash flow represents its lifeblood. Just as a typical complex organism won’t survive if blood isn’t pumped around its system sufficiently, so too will a business cease to exist if it doesn’t have a healthy cash flow.
In running a business, there are a number of measures entrepreneurs can take to free up cash flow and, ultimately, look towards growth and a brighter future.
The importance of sales
Firstly, and perhaps most importantly, a business can always improve its marketing strategies. Good sales figures are essential, so see what you can come up with in the way of new directions for your marketing strategies. Analyze existing or previous marketing routes, and be honest about how helpful they were in driving sales. Identify the costly routes and ask yourself if they are the most fruitful. Often with marketing, business owners gain in accordance with how much they initially invest – but this isn’t an absolute.
Ask your family and friends for impartial, honest advice. Many business owners today also seek marketing ideas from their employees, who can be encouraged to interact via social networks to really engage closely with the customer base and push sales figures further.
With marketing, as with everything when it comes to improving cash flow, it’s all about getting as much as possible from initiatives while spending as little as is realistically possible.
Stay up to date – think prices and costs
Every once in a while, it’s good to take a moment to analyze your price list. Have a look round at the offerings of competitors and other business. Do your prices match up? Be honest with yourself, as always, about how much you’re asking for what you’re offering. People have come to expect jumps in prices every now and then, but don’t be too drastic if you think an increase is necessary – people may begin to look elsewhere, particularly if your prices are steep in regards to the industry standard.
Conversely, don’t be afraid to lower some of your prices – just be sure to widely advertise the fact that there’s been a price drop. If you can retain a decent profit margin while slightly lowering prices, you might actually experience greater footfall and cash flow.
Similarly, the business’ fixed costs need to be assessed. Unlike variable costs, which change month to month and depend largely on sales figures, fixed costs – as their name suggests – generally remain the same. They include overheads, such as staff pay and the rent paid for commercial space.
This is perhaps one of the most difficult areas in which to reduce expenditure, since rent is often non-negotiable and members of staff need to be paid. However, you might find the way you’re powering your business isn’t the most efficient. Look at your energy providers and see if you’re using the ones with the best deals.
Cross reference supplier prices
On a similar note, it also pays to check product and material suppliers, and see if you’re using the best available. Perhaps the biggest pitfall for an entrepreneur on this front is to see that a supplier has a range of the products needed – and then just order them all from the one company. While this is undoubtedly the easiest option, it could prove that you’re paying more for a certain item than you could be elsewhere. Put together a list of the top suppliers; check the prices of their products and delivery charges. Do your research by asking questions and reading reviews left on forums and other sites.
There are a ton of options open to entrepreneurs, and those discussed here represent only the tip of the iceberg when it comes to improving cash flow. In the simplest terms, it all comes down to being sure that one dollar spent equals two dollars returned – and improving that margin in the long run.
Gemma Cole works for PS Finance, an independent brokerage offering cash flow solutions such as invoice discounting and invoice factoring. PS Finance is based in Manchester, in the north west of England. For more information about the services PS Finance offers, visit www.psfinance.co.uk