Cashflow is the lifeblood of your business, and managing it well will ensure your business’ vital signs are stable. Here are some ways that you can pump life back into your business and take care of your cashflow.
Ask for supplier rebates
Many of your suppliers will have the same cashflow issues as you, and a growing number will offer you a discount for early settlement or even an on-time payment. While policies vary from supplier to supplier, it is not uncommon to get a 2.5 percent discount for early payment of your account.
When multiplied across your main suppliers, you will find these rebates quickly add up into more money in your pocket – cha ching! An additional benefit is that you will also find improved relationships with your suppliers as you develop a reputation of someone who always pays on time.
Cut down on non-core services and products
Many businesses want to be all things to all people in their industry. However, while this may seem to be a good strategy to increase your market share, offering too wide a range of products or services, including ones that are less profitable or that you don’t have expertise in, can prove not only costly, but a distraction from your core activity.
When looking at the services some small businesses offer, you’ll often see companies with just three or four staff offering 15 or 20 services. While this strategy can work for some types of business, for many industries it will cost money to promote and maintain all these services, distracting them from where their core strength lies. It also true that few businesses are proficient or qualified in a large number of products or services. Consider reducing the products and services you offer and only offering the most profitable and strategic ones. As the old saying goes, stick to what you are good at!
Shrink your tail spend
Non-core product expenditure, often referred to as tail spend, covers those things you purchase that don’t directly drive your business. Since each of these suppliers and orders are generally quite small, most business owners don’t focus on these costs, preferring to find savings and discounts with their core suppliers, where their larger orders are placed.
However, as a group, tail spend could add up to 25-to-30 percent of your business’s total costs. This means that shrinking your tail spend is a great opportunity to get some significant savings in an area you may not have previously focused on – giving you a chance for some quick wins with little expenditure.
Given these costs are usually spread across a number of suppliers, benchmarking where they should be in relation to other similar businesses or competitors is challenging at best. Small businesses in particular can face issues due to a lack of buying power. However, by joining a buying group or aggregator you can get the best deals and have someone else do the hard work of tracking down the bargains for you.
Bring in the experts
Small business owners are often time and resource poor, so the ever-expanding world of outsourcing can be a cost-effective and clever way to achieve the results you require.
The benefits really start to add up when you outsource the areas of your business where you don’t necessary have the applicable strengths. Your time is then better spent focusing on running the core aspect of your business. Some areas to consider outsourcing include, accounts functions, marketing and PR, accounting, IT, legal work, purchasing and reception duties.
Manage your stock
One of the main cashflow issues for any small business is stock management. Depending on the style of business and the value of your stock, maintaining your stock levels so you can service your clients well without having cash left on the shelf is a difficult balancing act, but is crucial to creating better cashflow.
The size of your stock list is also an important aspect of this equation. Small businesses can fall into the habit of keeping products that are slow moving or high cost. These take up valuable high turnover and profitable storage or shelf space. It’s vital to make sure you keep close track of your stock list, and the amount of stock you carry, to ensure you are operating at optimum efficiency.
Another area that is often overlooked by small businesses is the timing of the orders. Do your cashflow a favour and make sure you are ordering product at the best time to take advantage of your credit account with suppliers and when the bulk of your orders are received.
Smart marketing can lead to a huge increase in profit for your business through more frequent patronage, add-ons and perhaps even increased prices! This can include:
- Encouraging loyal business through excellent service and remembering customer preferences,
- Ensuring your customers receive constant communication and helpful advice so that you are top-of-mind,
- Scheduling follow-up calls and reminders when a service or new product is due, and
- Using vouchers and customer referral incentives.
An area that many businesses overlook is referral partners and strategic alliances. Draw up a list of businesses that are complimentary to yours, but not competitors. Start a relationship with the business owners and see how you can help each other’s businesses to create a win-win situation. Here are some ideas on how you can do that:
- Offer a discount for their customers that use your services,
- If they have online influence, write guest posts for each other’s blogs or newsletters,
- Create a package that incorporates their services at a discounted rate. For example, a gardener can include a professional pavement and driveway clean in a package offer, and
- Include a voucher or discount brochure for each other’s businesses in customer gifts – this works well when it looks like a gift rather than a promotional item.
Don’t forget to make the most of other low-cost and free marketing tactics such as social media, PR, networking and speaking opportunities.
There are many online resources that you can tap into to help your business cut costs. Buying groups or aggregators, if credible, can provide immediate savings for your business, in particular if they provide contracted or negotiated pricing for ongoing use and not just one-off specials.
Some areas where these companies can save you money immediately include; banking services, office products, fuel, HR, training products, IT, courier services, waste removal and other common-use goods and services. Some industry based buying groups will typically have costs associated with membership, however there are some generic SME buying groups that are free to join and provide offers with non-ongoing fees.
With many SMEs expected to face continued declines in revenue over the next 12 months, now is a perfect time to carry out a check on the vital signs of your business. By cutting expenses, building relationships and taking advantage of smart marketing tactics, you can make sure your cash flow is strong enough to help you thrive even in the toughest economic environments.