Five Ways to Improve the Cash Flow in Your Business

Our topic today involves how to increase the cash flow in your business. Basically, I’ve come up with five really simple and effective ways to do this. Let’s get started.

1. Increase your pricing. I know this sounds pretty simple, but do you have a systematic plan or way to increase the prices of your products or services over time? Even a slight increase has a significant impact on profitability and oftentimes cash flow. Almost every business increases prices as time goes on. If you look at the grocery store for example, has food prices gone up in the last couple of years? The answer is yes. Yet, many small business owners refuse to increase their prices because they fear that doing so would turn away customers. A lot of times, this fear is unfounded. In most industries consumers are not that sensitive to minor price fluctuations.

So look at your prices and come up with a plan to increase them. Of course, there are situations where it doesn’t make sense to increases prices, but most likely it’s due to a rare occasion, such as during a recession.

2. Take an in-depth look at your cost of goods or services. Are there opportunities to purchase in bulk or find a different supplier? Overseas suppliers tend to offer better prices, for example. If you sell services, is it possible to outsource some of them to other countries where you can get work done at a lower investment? Reducing the cost of goods or services can have a significant increase on your cash flow.

3. Introduce more add-on services/products or increase the amount per purchase. Let me give you my favorite example: When you go to a restaurant, a great server is going to recommend items that can complement your order. I eat at this one particular restaurant probably 2-3 times a week, and there’re multiple waiters who serve me. They all know that I order the same thing every time, and so most of them don’t recommend additional items. Obviously, I keep my order consistent in these cases and don’t order anything differently.

However, there’s this one server who’s always recommending something different. I drink water almost every day, but he always asks me if I’d like some lemonade or ice tea. And honestly, every once in a while I would order another drink simply because he asked.

Now, that’s only a small incremental addition, but think about how you can expand upon this over the course of a meal. The server could offer a glass of wine, dessert, a cappuccino, a plate of veggies… The list goes on. You just continually sell little add-ons that can significantly increase the final bill at a restaurant. It can go from $15 to $18 or $25 to $35. Believe me, it makes a difference.

So do the same in your business. What are some additional products or services you can offer to increase the value for your clients and make their experience better? You can even follow up with them later down the road to suggest add-ons.

4. Improve the efficiency of your labor or decrease the labor cost. How well is your labor force operating? Can there be a better process or workflow? Look at ways to reduce overtime or see if you can decrease the number of employees and still run smoothly.

5. Reduce account receivable days. Many businesses allow customers to pay outstanding bills within 30 or 60 days. Think about how much better your cash flow situation will be if you reduce the time to pay from 60 to 30 days, 30 to 15 days, etc. What if you can collect the money before you even deliver the product or service? That’ll make a huge difference.

So just ask for the money sooner. Perhaps hire someone in your company to specifically focus more on collections. And think about switching to accepting credit cards only. Even though you have to pay the fee, it reduces the time to collect and also increases the amount of successful collections.

Those are the five ways that make a huge difference in cash flow. I’ve seen them work for my clients as well as others in the small business community. Go out and take action on some of these ideas today.