10 Ways to Improve Cash Flow
Just about every business would like to improve their cash flow. Below are ten ways which may help your business achieve that objective rather quickly:
Bill Promptly; Take Advantage of Payment Terms
The faster you can invoice a client, the quicker the clock starts to tick for the customer to pay in order to meet the terms of the contract you both agreed upon at the beginning of the relationship. Conversely, if you’ve agreed to terms of Net 30 with one of your suppliers or vendors, don’t pay the bill immediately; wait a little bit to take advantage of those terms and keep the cash in your (hopefully) interest bearing account a little longer.
Offer Payment Incentives; Penalize Late Payers
Many times businesses set forth payment terms of Net 15 or Net 30, but they neither offer any incentives to beat those terms nor penalties if the terms aren’t met. Consider adding both to your invoices to decrease your accounts receivable days outstanding. Chances are most of your customers will pay promptly if there is an incentive involved.
Run Credit Checks on Potential Customers
While this sounds like a no-brainer suggestion, many businesses today take whatever business they can acquire and run checks only when problems arise. Often times it is too late to run a check after issues surface. It’s better for your business over the long haul to reject a customer immediately that slow pays or is consistently delinquent. Slow payers are frequently troublesome clients aside from their propensity to get behind on paying you—they are typically the impossible to please variety that will nitpick your organization and sap its resources.
Sell off Under Utilized Assets and Fully Depreciated Assets
Once an asset has run through its useful life and is no longer a depreciable asset, consider selling it off if you can get good value for it. You’ll get an influx of cash that can help you replace that asset or upgrade to a new technology or model and possibly reduce your debt in the process. Many assets will last well beyond their useful life so you may be able to fetch top dollar from a smaller business looking to improve their operation by adding used equipment.
Encourage Partial Payments
If your business is in a bit of a cash crunch, try encouraging your clients to make partial payments on the front end of projects or working arrangements. Most will be agreeable to such provided you make some concessions on your end such as small pricing incentive or discount to do so. This helps you improve your cash on hand while helping your client spread payments out so that everything doesn’t hit all at once in one lump sum.
Comparison Shop Suppliers Online
The Internet makes comparison shopping a breeze, and some of your vendors and suppliers may take you for granted by not adjusting their pricing to reflect current market and competitive pricing. By checking the competitive landscape every quarter or so, you can gain some leverage by knowing how much you should be paying for particular items especially those that are more commoditized.
Stick to Budgets
This is another suggestion that may seem rather obvious, but there are several projects that suffer budget creep throughout a fiscal year. A couple hundred bucks here or there may not seem like much for a particular project, but it will quickly add up if there are multiple projects going on across an organization.
Spread Out Payments; Don’t Pay All at Once
Spreading out payments through a month versus paying everything on one day can really alleviate a cash crunch due to the natural flow of business and customers’ payment preferences. All of the money due to you in a given month doesn’t come in on one day so why should all of the money going out? This little tip can save a lot of headaches even though the temptation to pay everything on one specific day to get it out of the way may seem logical at times.
Add a Shift Versus Taking on More Space
A lot of small to medium businesses are quick to add office or production space when it may be more cost effective to simply add another shift. If your business is a morning shift only operation, how much could you save by simply adding a second shift versus adding production capacity? Chances are you could save quite a bit of development and rental costs by better utilizing the space you have today.
Pay by Credit When Possible
Paying by credit seems to have a stigma attached to it, but it can buy you some extra time to stockpile more cash to pay things off if you play the terms correctly. Since there are also some low rate credit options available, it may be more cost effective to take on a little interest expense until the cash reserves are built up enough to pay things completely off.
Cash flow problems don’t have to cripple your business if you take a step back and evaluate your options objectively. Implementing a few of the tips above can improve things almost immediately and put you back on the right track to a positive cash flow.
Customer Service Rule #1: Be Easy to Do Business With
After a lengthy bike ride last Saturday, I had some serious neck/upper back pain. It’s somewhat common for me after longer rides (3+ hours), but I somehow aggravated the injury while I was (of all things) taking a shower the next morning. I figured it was muscle fatigue or a mild strain that would disappear after a couple of days. Didn’t happen. After three days, it was time to bite the bullet and visit a professional.
There’s a new chiropractor/massage/rehab facility that opened less than a mile from my home so I figured I’d pop in on them to see if they could help me. There was even a sign in the front window stating “now accepting new clients.” Excellent! Not only are they convenient, they’re actively seeking people like me right now. Or so I thought. I entered and told the girl behind the desk that I thought I needed a massage to work the kink out of my neck. She said “great, let me see who is available and if we can get you in today.” Mind you, NO one else was even in the place from everything I could tell, and I saw three doctor/therapist types walking around as if they had some free time on their hands. After the girl looked at the computer schedule, she sheepishly looked up to tell me they could fit me in two weeks later, but they had nothing open until then. Another girl walked over as if she found that bit of information a little erroneous and suggested they might be able to fit me in the next Tuesday (today). The other girl said “no, that’s not right because he’s on vacation (meaning the therapist) so that wouldn’t work either.” They both agreed then looked at me like “sorry about your luck pal.”
If I had agreed to go through testing with a doctor and undergo x-rays, an hour questionnaire, poking and prodding, I could have seen someone the next day, but I couldn’t get anyone to help me with my immediate problem–the damn kink in my neck that was making it difficult to move my head around to see. If I had agreed to sign up for a treatment “program” (read: more expense), they might have magically found a massage therapist available. I left the joint a tad amused and a lot put off.
This incident was a further reminder that if you’re going to open the doors and welcome in “new” business, be prepared to take it in whatever way it comes to you. Suggesting that you welcome new clients is suggesting you’re not booked solid. Judging by the parking lot (I was the only car) and the doctors shuffling around as I stood there waiting to see if someone would be able to help me was further evidence that they definitely had room to take on more paying clients. They just don’t have room to take on new clients that don’t do things THEIR way (setting up an appointment weeks in advance, PLANNING for nagging injuries or aches, going through an insurance carrier, etc.) I was a walk-in customer that was prepared to turn over my credit card to receive immediate attention. I essentially had an open “budget” when I walked in there because the pain was strong enough, and I wasn’t in a mood to haggle over pricing or fee schedules. To me, immediate attention (time constraint) was more important than what it might cost (budget constraint). I had no idea what quality might come from being a walk-in, but I was willing to roll the dice to get rid of the kink so I wasn’t a difficult customer to please at that moment. They couldn’t even mildly accommodate me though.
Having read all of this, what are the odds I’ll return? They weren’t prepared to do business on my terms–take my credit card, some information, and administer a damn massage. They wanted me to jump through their hoops at their pace JUST to do business. I wasn’t a complicated case–just a simple massage today, please. Tomorrow I may decide I need x-rays and doctor assistance, but let me make that decision. Your policies and procedures shouldn’t prevent you from taking someone’s money and giving them what they want (within the broadest objectives of your overall business) as quickly as reasonably possible.
I worked in outside sales for two technology companies that I frequently challenged during sales meetings with this question:
“If a customer walked through that door RIGHT NOW and offered us cash to buy something we have in stock, could we sell it to them in less than 20 minutes?” You’d be shocked at the answer each time–it was “no, we’re not setup like a retail outlet like that. They’d have to fill out customer information, a credit application, references, etc.” What?!? To pay cash, they’d have to do all of that? Asinine and utterly amazing yet extremely true. That’s how some businesses set themselves up though. Don’t be one of those–be prepared to make it easy for someone to do business with you. Complicating things just to have a process or system in place is one of the dumbest things you can do if it doesn’t make it easy for someone new to do business with you. That’s common sense, but it’s amazing how uncommon that is anymore.
Is “find a need and fill it” bad marketing advice?
Posted by Michael Cage on Friday, May 18, 2007
Just because marketing advice is repeated often … doesn’t make it true.
“Find a need and fill it … that is the key to successfully marketing a business.” – Someone who needs to be slapped around a little bit.
Truth is, follow this “find a need and fill it” advice and you are inviting commodity pricing.
Think about it…
People NEED to get their roof repaired … but they WANT on-time, courteous service, clean workers and a guarantee their roof won’t leak again.
People NEED a computer network set up … but they WANT someone who understands their business, will suggest things to make it run smoother before a breakdown prompts it, and won’t make them feel stupid by talking geek to them.
People NEED to have a cavity filled … but they WANT to look good and have a pain-free experience in a friendly office with warm people.
People price shop for what they need, and even that makes them grumpy.
People pay premium prices for what they want, and they love it.
Go to an Apple Store. Play marketing anthropologist. Really observe the people. You’ll “get it” in less than an hour.
Service business, retail business, business-to-business, whatever your business…
…if your business struggles with commodity pricing or if you have to “justify” your price more than once in a blue moon … betcha an iPhone (ahem, another example) you are focusing on what your customers or clients need, and aren’t paying attention to what they want. And that makes them begin to not want you.
Forget find a need and fill it.
Find a want, touch your market … and lead a movement.
I talked about this in today’s Aggressive Marketing & Entrepreneurship Daily Podcast (along with a discussion about when to release version 1 of your product or service, true entrepreneurial competencies, and how to stay passionate and energized in your business). If you haven’t listened yet … what are you waiting for? … I’m on Episode #4. (Subscribe in iTunes.)
Eight Weeks To Business Change
by André Taylor
Searching for the right business strategy, many organizations fall in love with big concepts. But for many, it stops there, as “doing” can be an elusive concept. In my advisory work, I suggest a systematic approach to tackling change comprised of an 8-week period of intensive focus, followed by a repeat of the process in 8-week increments throughout the year. Here are the eight big questions to explore during this process:
Week One:
What are the next 5 things we must do to get closer to our vision?
This is the hardest part for many organizations. We often have too many objectives. It is important to have a crisp vision, but even more important is developing a crisp daily focus. This focus should consist of a handful of clear objectives.
Week Two:
If we keep doing what we’re doing will we achieve our vision within our timeframe?
During the first week of our program, you’ve defined your focus and you’ve begun to take action. But once you begin, you are bound to see adjustments that must be made. You must now take inventory of where you are.
Week Three:
“Who are the people and partners best suited to help us reach our vision?”
Creating change in an organization requires the participation of many people with different talents, backgrounds and perspectives. Vendors, advisors, partners, mentors, and customers are all needed and we need multi-generational team members to shape our approach.
Week Four:
What are our potential and current customers saying to us indirectly?
Develop an attentive ear. Your audience is often telling you things indirectly about their likes, dislikes, tastes, and preferences. We may think we’re listening, but instead we are really thinking of our customers as a group, rather than individually.
Week Five:
How do we create a new, distinctive relationship with our audience?
Our objective is to reach a level of interaction with our audience that reduces and ultimately eliminates boundaries. We want to penetrate and understand the customer “psyche” and discover what’s beneath the surface.
Week Six:
How do I move into the view of new customers and partners?
New audiences want to feel like they’ve discovered you. Your role is to help them do this, by moving into their view. By partnering with other organizations, you will expose your business to new audiences.
Week Seven:
How are we managing the natural conflicts and complexities that arise?
Dynamic organizations are comprised of people with differing views, experiences, and competencies. We need a composite of organizational talents to advance our mission. We must also change the perception that disagreement is bad, or that there should be a penalty or stigma associated with failure.
Week Eight:
How do we follow through in the most efficient way?
Today’s environment requires highly focused periods of evaluation, ad hoc teams, a rapid assessment of the situation, and quick decisions. We must also trust individuals with an uncommon understanding of the situation who can “run” with their creative vision.
© Copyright 2007 – André Taylor – Taylor Insight Group, LLC. Go to http://www.andretaylor.com and get Andre’s free newsletter.
André Taylor is an award-winning entrepreneur, author, and advisor to growing companies and one of today’s dynamic voices on business and personal success. He’s the author of a collection of audio and video programs reflecting more than 25 years in enterprise management and the discipline of personal and organizational development. He provides an uncommon understanding of the lessons of business and personal resilience, and extraordinary insight and commentary on the subjects of entrepreneurship, leadership, sales, marketing, innovation, and growth.
Who Do You Think You ARE Anyway?
In order to write a vision for your business, the first step is identifying who you really are and what is important to you.
Not what you DO or have been doing, but who you ARE.
You may be doing things that are really not in alignment with what is important to you in your business. It’s critical to identify any of those discrepancies to redirect your efforts toward a successful venture.
List all the things that you don’t want to see in your business. A great way to do this is to create two columns and make the list of your “don’t wants” on the left and in the right column list what it is that you do want. This is sometimes referred to as the “T exercise” because of the T created by the columns.
It’s easier to identify what is important to you if you think of what it is that you don’t want first. We just seem to come to better choices that way. The important thing is to identify quickly what you do want without putting too much emphasis on the negative.
Areas to consider in this business analysis sound very much like ones you would include in a newspaper article: Who, What, What, Where, Why and How!
What products or services are planned? What image is important to you? What is your role as the owner? With all of these questions, first write what you don’t want to have and then write the reverse to clearly identify your desires.
Next, you need to consider the location, the Where. What is the location of the business? Where do the customers come from? Where will various parts of your business be located?
The next W is the Who. You need to determine whom you don’t want as customers and then clearly define who your ideal customers would be. Other considerations in this category are possible strategic alliance partners, and advisors who could be a support to your business growth.
Timing of your startup including completion of necessary facilities and systems is the “When” of the equation. A difficult area for many businesses is determining when it is the right time for expansion and delegation of responsibilities to allow for growth. The challenge is to do this without overextending their financial resources.
Probably the very most important category for consideration is the Why. Why are you creating the business? Just as important is the question of why your customers will buy what you are selling.
The How plays a key role in the climate of the business. How do you envision your interactions with employees, suppliers, and customers?
Taking all these categories through the process of writing what you don’t want to see in your business and turning them around to the clear choice of what you do want will bring you to a list of desired characteristics. From this you can pull together a summary and then condense it into just a statement.
An example of a vision statement might be, “Within the next five years grow Widgets International into a $5 million international widget company providing custom-made widgets of excellent quality to makers of patio furniture.” You can choose this simple format or one that is worded more in your writing style.
With the vision statement, you have a clear description of what you see your business doing in five years. You could also write this for a shorter or longer time frame.
All of the steps you worked through in this process will help you as you develop the rest of your business plan.
Your next step is to create a mission statement. The mission statement gets into more of the implementation of the vision you see. It is broad and then is broken down into the necessary goals, strategies, and plans to carry out the mission statement.
Step by step you are refining what you really envision in your business. You can start to answer that question, “Who Do You Think You ARE Anyway?”
Exuberant Productivity Coach, Suzanne Holman, MAEd, works with financial service professionals, realtors, and self-employed professionals determined to make every hour they work truly productive so they have quality time and abundant energy for fun and family!
For a FREE Exuberance Assessment and tips for increasing your productivity and having a more satisfying life, visit Exuberant Productivity.com
Business Growth – Examining Five Killer Strategies For Trouncing the Competition
by Robyn Knapp
Winners in business play rough and don’t apologize for it.
Toyota has steadily attacked the Big Three where their will to defend was weakest, moving up the line from compact cars to mid- and full-size vehicles and on to Detroit’s last remaining profit centers, light trucks and SUVs. All the while, Toyota has dared its rivals to duplicate a production system that gives the company unmatchable productivity and quality.
Dell is similarly relentless, and ruthless, in dealing with competitors. Last summer, the day after Hewlett-Packard announced weak results because of price competition in PCs, Dell announced a further across-the-board cut – delivering a swift kick to a tough rival when it was down.
Wal-Mart is well known for its uncompromising stance toward suppliers. In 1996, Rubbermaid, a $2 billion business that a few years earlier had been Fortune’s most admired company, ventured to contest Wal-Mart’s pressure on suppliers to lower their prices – and Wal-Mart simply cut Rubbermaid off. (Newell acquired a struggling Rubbermaid in 1999.) Wal-Mart doesn’t pull punches with competitors, either. In recent years, as Kmart floundered in bankruptcy proceedings, Wal-Mart rolled out a knockoff of Kmart’s Martha Stewart product line, putting pressure on one of the tottering retailer’s few areas of success.
Hardly anyone would dispute that Toyota, Dell, and Wal-Mart have epitomized corporate success over the past decade. But the raised eyebrows they provoke – recent BusinessWeek cover articles have included “Can Anything Stop Toyota?” “Is Wal-Mart Too Powerful?” and “What You Don’t Know About Dell” – suggest there’s something not quite kosher about the way they achieve that success.
That’s because Toyota, Dell, and Wal-Mart play hardball. What do we mean by this? Hardball players pursue with a single-minded focus competitive advantage and the benefits it offers – leading market share, great margins, rapid growth, and all the intangibles of being in command. They pick their shots, seek out competitive encounters, set the pace of innovation, test the edges of the possible. They play to win. And they do.
Softball players, by contrast, may look good – they may report decent earnings and even get favorable ink in the business press – but they aren’t intensely serious about winning. They don’t accept that you sometimes must hurt your rivals, and risk being hurt yourself, to get what you want. Instead of running smart and hard, they seem almost to be standing around and watching. They play to play. And though they may not end up out-and-out losers, they certainly don’t win.
This may reflect the recent emphasis of management science, which itself has gone soft. Indeed, the discourse around a constellation of squishy issues – leadership, corporate culture, customer care, knowledge management, talent management, employee empowerment, and the like – has encouraged the making of softball players.
“Hardball”, George Stalk, Jr. and Rob Lachenauer, Harvard Business Review, April 2004. Visit CJPS-Enterprises for more information.
At CJPS Enterprises, we specialize in execution. Getting things done. Our approach is designed to give your company an unfair advantage. We have years of experience in the medical industry, a long list of contacts and access to the leading minds in healthcare. We’re catalysts, analysts, managers, negotiators – experts in every aspect of raising capital and facilitating breakthrough growth. Visit us at http://www.cjps-enterprises.com
What’s Your Exit Strategy?
Although very important for entrepreneurs and business owners, we would all be served well by having a well defined exit strategy. Similarly to your investment portfolio, an exit strategy needs to be recalibrated over time to make sure it serves you and not the other way around.
Every business goes through a life cycle. It may be a sudden chapter 11, the sale to a relative, wanting to buy something else, or a market opportunity to sell. It is a good idea to consider how your business (and skill) will be valuated, before you get to that bridge and need to cross it.
Business owners and entrepreneurs often risk placing an unrealistic value on the “good will” component of their organization. What are realistic market valuations of businesses? A couple of years ago, our professional network asked that question to Richard Ward, of the middle market investment banking firm Everingham & Kerr, Inc. and got an education. Here’s what we found out.
Where the value is
A normal growth per year hovers around 3-4%. And owners of mid-sized companies often have no idea of the value of their business. Many of the companies E&K works with started probably as businesses with a turnover of $200k or $300k and are now making $2.5MM a year.
Most founders are pretty poor at selling and marketing their businesses — they are the specialists: engineers, scientists, and operational people. For example, a business that earns $2-3MM per year may have the growth potential opportunity/value to $10MM but the owner takes home $750k and does not care. There is tremendous opportunity for a marketing specialist to help you build more equity in your business, yet, as Mr. Ward stated, most business owners are quite happy with status quo.
Another example is the value of a company’s customer base. E&K may talk to an owner that will be able to sell the customer portfolio for $2.7MM, stay on to help with transition for a hefty salary and, on top of that, lease the building he owns to the new owners of the business.
What is an Exit Strategy?
Having an exit strategy is about increasing the value of a business, not about the things you’ve always done and been successful at. What are the things you can do to make a business stronger?
Every situation is different. Take for example a company’s culture. It may seem a soft issue. Yet, it is a huge determining factor in buying and selling a company. The deal goes through if the buyer and seller like each other — and that includes the employees. In most cases the owner stays on for a transitional period of time to run the business.
This is true even of larger companies. I’ve been in 4 corporate acquisitions to date (on the acquired side), and the companies that in my view realized the most value out of the deal have been those who set a specific transition process for knowledge and people. Never underestimate the value of people. A bunch of files, even when well kept, will never give you the same value as the experience and relationships of the people who got the company to where it was palatable to buy.
A case study
Comparing two companies that on the surface look similar:
- Company A — Company L
- Current $4.0 — $4.0 [revenues in millions]
- 2001 $4.7 — $3.6 [revenues in millions]
- Loans ($1.7)– (750k) [liabilities]
- Capital 0 — (1.0) [expenditures needed*]
- Owner 1/2/3-yrs — 3/cash [terms of sale in millions]
* purchase price = what you pay and what you have to spend
In the past, banks would lend against cash flow. Today you leverage against assets (equipment, for example). Plus there needs to be a personal guarantee (collateral). Many companies to not have many assets (consultancies, for example) so you put more up or the seller takes on more risk. For a good company you’d put down 20%, finance 60% and the owner holds the remaining 20% back, usually for three years.
Everingham & Kerr deals with mid-sized companies, but 80% of the deals that are done in today’s market are worth less than $1MM.
What are the Steps?
- A buyer LOI (letter of intent)
- Due diligence (up to 90 days)
- Purchase agreement (lawyers, bankers and accountants get involved — the accountants for the buyer are easy to work with; the ones for the seller don’t want to lose the account)
Situations happen at any time during the process. For example, someone may die in a car accident. Investment banks work in different ways, so make sure you ask yours. Everigham & Kerr takes a $15k retainer that gets applied against the success fee at the end.
Regulatory Environment
There is a moral problem inherent with dealing with people’s largest assets — their business. Mr. Ward is President of the PA Business Brokers Association and is working with State Senator Stuart Greenleaf to regulate business brokers. There have been many scams wrought in by unscrupulous companies that give seminars for $20-25k, give you a nice looking binder and then nothing comes of it.
There is an opportunity to write legislation that will protect businesses in their most vulnerable times: when they are thinking of selling. The International Business Brokers Association requires a license to do business.
How do you go about it?
Figure out what your future is and develop a transition plan. It’s not about revenue, it’s about value. Review your exit strategy with a professional. Look at fixed costs vs. revenue stream, for example and where your opportunity to increase the margin is.
The planning stage should be 2-5 years out. The market price is the amount of risk the buyer has to take on. For the seller it’s the future — when is enough, enough?
Time is an enemy when closing the deal so make sure that your communications are frequent and well articulated. And remember: “Goodwill” should be just for old clothes.
Is Your Strategy Wrong?
If you are not using the 80/20 Principle to control your strategy, your strategy is more than likely wrong. You may not have an accurate picture of where you make, and lose, the most money.
Where are you making the most money?
Conduct an 80/20 Analysis of profits by different categories of your business:
by product or product group/type
by customer or customer group/type
by any other split which appears to be relevant for your business
by competitive segment
Look at the sales over a given period and then determine the profit of each after allocating all of the cost for each group/type. Be careful when allocating the cost as each product will be different and have more or less activity from sales, manufacturing, etc.
When correctly allocating the cost to each product, you will usually find that some are making most of the profit and some are accounting for most of the losses, with the rest falling somewhere in between.
After products, go on to look at each customer, some will be willing to pay more but require a higher cost to service. Follow the same analysis for the remaining group/types that you have identified.
Now with all the information at hand divide your business up into segments and what products they use and determine the return on sales for each. Find the closest top 20% and the closest bottom 20%.
What actions should you take on this Analysis?
Before you take any action, know what the results will be. Will reducing the resources for one segment have any affect on another segment that is showing a profit? Discuss the changes with all departments to be sure that everyone is on board and that you have not overlooked anything. If a segment is losing money but improving you may want to give it time before shifting resources to a more profitable segment List each segment and assign a priority, describe the characteristic and the proposed actions for each segment.
Your goal should be to start with an 80/20 profit analysis and determine a segment strategy. Continue to refine your results and redirect your efforts to the areas where you can gain the most benefit. There will always be an 80/20 relationship between the group/types in your business, and there will always be room for improvement. The work will never be complete.
Sugested reading: The 80/20 Principle, by Richard Koch, ISBN 0-385-49174-3
Think of an example from your business where the 80/20 Analysis might result in strategy for improvement in profits.
About the Author: Hubert Crowell, Cave Explorer
After working in service for 23 years with Eastman Kodak Company as a service person, technical support and training specialist, followed by another 13 years working for other companies in the service field, I have decided to share my ideals on improving the service department. I would like to thank Jack Ingram, my supervisor at Eastman Kodak Company for the encouragement and guidance until his retirement. I would also like to thank Barco Projection Systems and all the great employees that worked with me for the last seven years before I retired.
For complete paper on The Service Department, Please visit my web site at: http://hucosystems.com/
I have started writing as a hobby and plan to write about my life, work, hobbies, religion and many other things of interest to me and maybe others will enjoy also.
For a complete viewing of my articles with photos please visit my article web page at:
