Huge problem facing most businesses? Routinely falling into a cash crunch.
The good news is it’s easily avoidable.
Here are 11 ways to turn your cash-hog company into a profit fountain:
First, understand the basic principle:
The less time it takes to convert resources to cash, the healthier the business.
Not only does that mean the business is easier to run, but buyers will pay a premium for businesses with great cash conversion.
Here’s how to do it:
#1 Shorten sales cycle
The longer your sales cycle, the longer between spending $ and resources on generating the lead and collecting cash
#2 Reduce inventory
Inventory is money tied up in “stuff”. When you see inventory, see dollars trapped, yearning to be free. Reduce inventory and decrease cash you have tied up.
#3 Right-Size Delivery Staff
If you have a service business, think of delivery staff as inventory. Right size your delivery staff for the forecasted jobs. You’ll never get it 100% right, but too many mouths to feed and not enough paying work isn’t good for anyone.
#4 Reduce delivery cycle
Longer delivery cycles tie up resources that could be servicing new customers (and generating cash). If you’re only getting paid after delivery, then a long cycle is between you and cash collected.
#5 Collect up front
The most obvious one here. If you can, collect up front and your cash position is immediately better.
#6 Invoice promptly
Way too many businesses end up invoicing 60 or 90 days later than they could. Combine that with a net 30 invoice, and customers getting a 30-60 day grace period after that, and you’re getting paid in half a year(!)
#7 Don’t Extend Terms
So about that net 30. If you can’t collect up front, why not net 15? Tell your customers: you’re not a bank. You’re in the business of providing X, not lending money.
#8 Stretch AP
On the other hand, get super long terms for vendors you pay. The longer you hold onto cash before it goes out the door, the better your cash position will be. Get long terms, pay just down payments, etc. Do exactly the opposite for your vendors as you’re doing.
#9 Lease, Don’t Buy
Unless something is mission critical, consider leasing it. Just like inventory, that truck, machine, or whatever is just a chunk of depreciating cash… Which could be better deployed elsewhere
If it’s not core to your business, consider outsourcing it – and get a rock solid Service Level Agreement. Let a specialized company focus on efficiencies that aren’t core to your business. Oh, and stretch their payments too.
#11 Consider Factoring
Invoice factoring is selling accounts receivable invoices at a discount in exchange for immediate cash. It’s not for everyone, but sometimes it’s a great bridge as you work on your cash cycle
Doing the 11 steps above can more than double cash on hand.
Discover a weekly list of short, actionable steps to get out of operational deadlock, build a self-managing team, grow strategically, and increase company value in the Boardroom Bulletin™.