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 Cash
flow is often called ‘the lifeblood of a business’, and for several good
reasons. But the flow of cash into most businesses is uneven and there can be
times when a constrained cash flow creates serious problems, even if the long
term situation is positive.
There are, however, ways to improve the cash flow of any small business and
remove some of the worries about bills not being paid or not having enough on
hand to pay wages. These mainly involve no more than adjustments to what you’re
already doing and so aren’t difficult to implement.
Keep Inventories as Low as Possible
Inventories are expensive in many ways. There’s the interest paid on
money borrowed to acquire items that are awaiting sale. There are also the costs
for storage space and handling, as well as insurance expenses and the
‘opportunity cost’ of what money spent on inventory could be earning elsewhere.
In some cases, inventories are so badly managed that much of the material
becomes obsolete before it can be sold.
Having too much inventory is an indication that business process problems exist
in the organization. Some of these problems include poor sales and operations
planning, inaccurate forecasting, ineffective production scheduling, and the
existence of bottlenecks in one or more systems just to name a few of the
possibilities.
Inventories can be reduced by focusing on fast turnover lines or cutting down on
the number of items in stock by negotiating with suppliers for faster
replacements. Improving sales forecasting and optimizing production planning are
other areas to look for improvements.
Making minor process changes and a better utilization of processes and
systems already in place will allow most businesses to achieve an inventory
reduction of 20% or greater quickly and without a great deal of expense.
Reduce Your Repayment
Obligations
Even the smallest
business probably has at least one loan for stock and operating expenses, a loan
for a motor vehicle, a loan for some form of capital equipment, and a credit
card or two for travel and entertainment.
You can save a great deal of interest and improve your cash flow position by
consolidating as many of these loans as possible into just one monthly repayment
and negotiating a loan term that’s in line with your cash flow and income
projections rather than have it dictated by past conditions that may no longer
apply.
Watch your
invoicing
Prepare your invoices
promptly and send them out on a regular basis. Customers are more prepared to
pay a bill on time if it’s received shortly after they’ve received their goods
or services. The longer you wait, the longer they’ll wait to pay you.
Reward C.O.D. or
fast payments
A discount for cash or
fast payments is a good incentive for customers to pay you quickly – even ahead
of other creditors who don’t offer a reward for early settlement of their
accounts. The old system of ‘2% discount if paid in ten days or the net in
thirty days’ still isn’t bad if you can communicate it and enforce it, although
payment within sixty days is now more common if customers are allowed to get
away with it.
Credit Check Every
Customer
Some small businesses
make the big mistake of taking on customers solely on the basis of their
appearance. If the customer pays cash for their first order they might even
forego a credit check. This can be a big mistake that leads to massive cash flow
and debt collection problems. Give every customer a thorough credit check and if
in doubt ask for references from other firms before letting them run up a bill
with you.
Try Bartering for
What You Want
Because bartering uses
something in your inventory to pay for something your business acquires it can
benefit cash flow to a degree. Bartering can be particularly beneficial for
service businesses with unused capacity, such as a plumber exchanging labor for
capital equipment. Bartering also offers some valuation flexibilities that can
increase the value of benefits received.
Sharing Means Saving
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Small businesses can achieve some pretty good savings by sharing with
each other. On its own, a business producing a million dollars of
revenue might not have a lot of clout, but when two or three small
businesses team together to share something they can collectively reduce
their total costs.
Share Space Costs
Most businesses require
office space plus additional space for storage, warehousing or some
other purpose. As businesses grow they tend to require more space and
this often becomes a factor in moving the entire business to larger
facilities.
If you need more space
you can place an advertisement in local newspapers inviting nearby firms
with excess space to contact you. You’ll also hear from a number of real
estate agents offering to lease you more space but one or two might
actually be offering bargain space that’s someone else’s surplus. And if
you have extra space you can advertise it in local newspapers or place
it on the market through a real estate agent. Even if you think you may
need it in a year or so you can lease it out for a short term and
probably find a tenant with a temporary space requirement.
As a ‘sweetener’ to attract a tenant you might be able to offer to share
some of your facilities with them – office equipment, loading dock,
security service and so on. If you’re already paying for them it won’t
cost you any extra to use them as inducements to gain a tenant for your
expensive, unused space.
Share Equipment
Costs
If there are a number
of small businesses in the same building, it’s possible for each of them
to save by sharing expensive items of office equipment and setting up a
central facility. Such services as photocopying, faxing and employee
meal preparation all require equipment that can be shared by a number of
firms.
Share People Costs
Another way to save by
sharing when businesses have a common location is to rationalize certain
positions. A receptionist can look after the needs of several small
businesses. Bookkeeping and security personnel can also be shared in
these situations. Sharing equipment and people will mean working out a
lot of details between the businesses, of course, but the potential
savings are there if the firms can agree on the way they will be
achieved.
Share Purchasing
Savings
Most businesses spend
money on vehicles, travel, stationery, telephones and any number of
common business related products and services. By working together to
identify future purchases - of vehicles, for example - businesses can
buy together and negotiate big savings. Purchases of stationery and
office supplies can be guaranteed at a certain minimum monthly level and
a percentage discount off regular prices agreed with suppliers.
Other possibilities, like introducing VoIP telephone services, do
require an initial capital investment, but if several businesses do it
at the same time they can share the costs of hardware and software and
reduce their setup expenses.
Purchasing of
everything from advertising space in local papers to printing costs of
leaflets and business cards can also be done in conjunction with other
businesses to create savings. Suppliers may try to reject joint buying
on the basis that all advertisers or print customers have to be invoiced
individually, but ultimately money talks, providing minimum levels of
purchases can be determined.
Handled intelligently, taking advantage of sharing opportunities can
shave up to five or even ten percent off most purchasing done by small
businesses. It’s certainly worth exploring, even if it takes a bit of
effort to get the process underway. |
Saving on Business
Travel
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Travel is now a part of most business people’s lives at some time or
other
 but
traveling can be an expensive business and searching for convenience
and value should be part of your initial preparation. Thanks largely
to the ability to make bookings for flights and accommodation over
the Internet, there are now a number of ways to search out
opportunities that can reduce business travel costs.
Airfares can
be Slashed
It really pays to shop around for airfares instead of just making
reservations through your ‘usual’ airline. There are budget airlines
with much lower standard fares than other carriers, but even the
big-name airlines have specially discounted rates at some periods.
Also check out the last minute specials that most airline websites
include before making your reservations.
The fare of a flight is often based on seasonal prices at the time
of purchase, regardless of when the flight will be made, so if
possible book your trips during relatively low load times such as
the end of summer. Also, prices in the middle of the week will
usually be cheaper than prices at the end of the week, so a trip
from Wednesday to Wednesday will cost less than from Saturday to
Saturday.
Slam
the Door on Hotel Room Costs
The accommodation business has undergone dramatic changes in recent
years. Most properties now have what might be called ‘asking’ prices
(or ‘rack rates’) that only the unwary or those who can afford not
to care about money would pay.
There are three basic ways of working around the rack rates and
finding out what cheaper rates are on offer. The first is to go to a
site that lists discounted rates and packages at specific hotels and
motels. The second is to go to a site that lets you specify the
location and type of accommodation but find the best deal from a
range of matching properties. The last is to go to the big name
hotel (after you’ve checked out the discount rates) and see if they
can match or beat the other offers. Also look for packages that
include meals and hotel facilities at no extra cost.
Look
for Competitive Car Rental Rates
The same thing that’s happened to airfares and hotel rates has also
happened to car rental rates. When you’re making a reservation for
an automobile at your destination specify something small and
inexpensive. At the very worst they’ll have it and you’ll save
money. But there’s also a chance that you’ll be upgraded and get
something better for the same amount.
Another way to save big is to shop for rental rates on the Internet
and look for daily specials on the day you intend arriving. And
don’t get pressured into buying expensive insurance while you’re
driving a rental - you may be covered by your own vehicle policy
anyway. Check first.
Don’t
Spend Unwisely While Traveling
It’s always tempting to use the minibar in your hotel room as a
source of snacks and drinks, but you’re paying a very high premium
for the privilege. It’s far better to bring these items with you and
use the hotel’s refrigerator, ice and glasses that cost nothing
extra.
Another way to purchase things at sky-high prices is to buy from the
catalogue or trolley you see on some airlines while you’re cruising
at 30,000 feet. Do you really need these things anyway, and why
would you pay higher prices for them here than you would when your
feet are on the ground?
It’s now possible to make phone calls and send email from commercial
aircraft, but of course you’re going to pay a lot more than you
would on the ground. Unless messaging is absolutely essential, wait
until you’ve landed. Almost as expensive are the calls from your
hotel telephone. Use a cellular phone or payphone and you’ll only
pay half as much.
Room service in hotels is always a great treat but you’re paying a
lot extra for it (and probably tipping as well). Most properties
have a range of eating establishments and you don’t have to eat in
the most expensive one. You’ll also save by not taking advantage of
the hotel’s laundry and dry cleaning services - the shop up the
street will be a lot cheaper.
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Safer Internet Banking
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Many
businesses do their non-cash banking via the Internet. It’s convenient
and fast, but it can expose the business to fraudulent operators that
use a range of electronic trickery to loot online accessible bank
accounts. There are a number of things you can do to protect your
business from these con artists.
Protect Your
Passwords
Make your password hard
to guess. Don’t use things like birthdays, telephone numbers or street
addresses as passwords and don’t use the same password for more than one
account. The best passwords are meaningless. e2Kb5C1dd isn’t going to be
easily guessed, nor is it likely to be generated by a random password
generating program used by the conmen. Your password will be even safer
if you change it regularly - every month is a good idea.
Restrict knowledge of details like user names and passwords to as few
people as possible, and don’t write them down even if you think you’ve
disguised them by converting them to phone numbers.
Be Careful Using
the Internet
Be sure nobody is
observing you whenever you enter your user name and password to access
your bank account. Don’t use a computer outside the office to access
your account unless it’s absolutely necessary. Always key in the bank’s
Internet address; don’t go there by clicking on a link in an email - it
could be taking you to a false address. Look for a padlock symbol in the
bottom right hand corner of your browser. It denotes an encrypted site
that ensures a secure transmission of data.
Be sure that any computer you use to do Internet banking has a firewall
and antivirus software installed. When you finish your browser session
log out and close the browser, and even when using the computer in your
office don’t leave it unattended while you’re logged on to the banking
website. It’s even better to take your computer offline when you’re not
using it.
Keep Virus
Protection up to Date
Viruses are bad enough
when they pop up annoying advertisements or cause your PC to stop
functioning. They also have the ability to hide a hidden code that can
transmit your banking details to a third party or allow someone to take
control of your computer.
You should update your antivirus software each day or at least before
beginning any online banking session. You also need a firewall that acts
as a ‘gatekeeper’ between your computer and the Internet. This is most
important for anyone using a cable or wireless modem.
Never open email attachments from unknown sources; these attachments, no
matter what they might seem to be, can contain viruses. Even attachments
from someone you know can be a ‘spoof’ and have been sent without their
knowledge. Caution at all times is required.
Beware of Hoax
Emails
You may receive an
email from your bank or other financial institution requesting you to
‘confirm’ your login information or to reveal your password in some
other way. These are common hoaxes.
If you do receive one of these hoax emails delete it and notify the
financial institution. Don’t click on any links within the email and
never provide the sender with any information. Many of these hoax emails
contain viruses or will take you to a site where a virus can be loaded
onto your computer without your knowledge. |
Memorable Quotation
“The
best executive is one who has sense enough to pick good people to do what he
wants done, and self-restraint enough to keep from meddling with them while they
do it.” - Theodore Roosevelt
How to make the most of your newsletter
Be sure to read each article with the mindset "How could this apply to our business." Thinking of it that way will guarantee that you get value. Better yet, take notes as you read and commit to having the ideas implemented by the time the next edition arrives. Also, make copies for each team member. To really make sure something positive happens, work with your business development specialist to talk your team through the ideas and how to set a schedule for getting them implemented. We're here to help you get started.
An important message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.
Terms of use
All rights to the content in this publication are reserved by RAN ONE Inc. Any use of the content outside of this format must acknowledge RAN ONE Inc. as the original source.
© 2005 ROC Systems Pty Ltd
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