Although most small businesses close within their first year of operation, some survive for five years, while others thrive for over a decade. If you want your small business to be successful, then you must have a grasp of your costs, revenue, and profits, especially when your operation is in its infancy.
You won’t be able to enjoy your projected profits if you can’t meet your operational expenses. That’s why it’s important to have a good cash flow position. Many businesses mistakenly believe that optimizing the cash flow position is only about generating revenue. There are several steps your business can take to improve its cash flow:
#1 Optimize Your Price
Whether you’re selling goods or services, it’s important to set the correct price. Test the market to make sure that you’re not undervaluing your products. If your price is too high, then you may lose market share to competitors. However, if you’re priced too low, then your product may be considered inferior and your profit margins may suffer.
#2 Stay on Top of Market Research
When conducting market research, remember that it’s a continuing process. Keep analyzing trends and patterns to keep up with customer demands. Likewise, analyze the behavior of your customers and competitors. Remember to discuss the research with your employees to adopt the right strategies.
#3 Control Expenditures
Negotiate with your vendors and renegotiate as your business grows. As your purchase volumes increase, you should be paying lower prices. If possible, partner with a local buying organization to negotiate lower prices. Encourage your suppliers to stay competitive by shopping around.
Train your employees to negotiate better prices. Make fiscal responsibility an important characteristic of your company. Small expenditures can add up.
However, spend where necessary. For example, old and outdated equipment and inventory can hurt your cash flow. If upgrading equipment is too costly, then consider leasing equipment after conducting a cost-benefit analysis.
#4 Incentivize Early Payments
Send invoices on time and follow up with timely reminders. Remain professional with late-paying customers. Stay firm but polite. Remember to use a contract that offers early payment bonuses such as small discounts or bonus products that are worked into the original price.
Avoid harassing your customer. As a small business, your reputation and the valuable relationships that you’ve carefully cultivated with your vendors are important. If you need help collecting unpaid invoices then consider partnering with a debt collection agency that specializes in serving small businesses and uses an ethical and diplomatic attitude towards debt collection to preserve your standing in the business community.
Partner with an agency that doesn’t demand a certain number of accounts or payments upfront. Agencies that only take their cut after they’ve successfully collected your revenue are usually more motivated to complete the task.
#5 Have a Social Media Presence
Improving your market reach by marketing to customers through social media. Not only can a strong social media presence help your cash flow, but it will build brand loyalty.
These five tips can help you improve your small business’s cash flow. By stayed ahead of your expenses and liabilities you can have a strong cash flow position.