As 2014 comes to a close it is important to reevaluate your business model and consider the steps you need to take in the New Year to increase cash flow and boost your bottom line. Cash flow is crucial to a company’s survival. Having sufficient funds on hand will not only ensure that creditors, employees and others can be paid, access to cash is a necessity for business growth.
If you have a CFO or a financial advisor sit down and speak with them. Find out if there are any opportunities for increasing cash flow through restructuring a portion of the company’s assets that may be idle. If you don’t have this option here is a checklist that you can work through to ensure that your business model boosts your bottom line in 2015:
Prepare a realistic forecast
If business is growing, don’t just focus on the top line. Are you controlling costs? Are you ready for expected growth? If sales double, do you need to purchase fixed assets? If so, you need to think about how to finance new assets. Bottom line: forecast not just sales but what it will take to attain the sales.
Evaluate selling terms
Are your terms too generous? Business standards are Net 30 but maybe you offered better terms when you were starting out in order to win new business. Now is a good time to see if the selling terms still make sense. If you can reduce the collection time, that is money in your pocket.
Segment your business
Business is always evolving. For example, a company may have started selling widgets direct to consumers and it is now also selling wholesale. If you add new lines of business you should look at the two sales channels separately. See what is making more money or losing money. It might make sense to set up the wholesale operations under a different legal entity, since payment will probably be on terms. You may need to finance the wholesale business differently than the direct to consumer model, where revenue is typically collected in cash or from credit card payments.
Review your customer portfolio
Who are your best customers and why? Rank customers by profitability and sales volume. Is there a large variance between the most and least profitable customers? If so, why? Analyzing your customers will help you speed up your sales cycle. Being clear on why your customers choose to buy from you and highlighting those advantages in your sales process can aid in reducing resistance and move people to buy more quickly.
Improve the invoicing process
Almost everyone can make improvements to the invoicing process. Every company should strive to get invoices out earlier and double check that they are being sent to the right person. If you only send invoices once a month to an Accounts Payable (AP) PO Box, chances are high that payments are slow. Review and confirm who the correct AP contacts are for all customers. AP tends to be a very transient department, with people are moving into new positions all the time. Make sure your contact is the right one before sending the next set of invoices to the black hole.
Seek ways to save
You may consider deferring founders’ compensation. Making this temporary move will free up cash, and in most cases your business will more than pay you back in the long run. Eliminate unnecessary expenses such as online or print subscriptions you are not reading, these cash flow negatives can help give a slump a much needed boost. Give your customers incentives to build a long term relationship with you by offering annual discounts. Try offering a one month discount to them for paying a year in advance.
The first quarter of the year can be busy, especially when you are trying to establish new practices, while staying on top of everyday demands. To avoid becoming overwhelmed, set realistic objectives outlining what you can and cannot do. Begin by preparing a realistic forecast, and remember the mantra, “Fail to prepare; prepare to fail.”
