“Cash is king.”
We all know this saying. Lack of cash is even the reason that most businesses fail. Having cash on hand can help your business withstand challenging times or decide to invest to grow your business. It will allow you to take advantage of unexpected business opportunities. It gives you more peace of mind as a business owner.
It is said that Apple, the company that creates the iPhone and MacBook, keeps 100 billion USD in cash at all times so that they can take advantage of business opportunities. I don’t expect you to have even 1 million USD in cash on hand, but I do advise you to look for ways to increase the amount of cash flowing into your business.
Healthy cash flow is the result of business operations running smoothly and efficiently. Today’s post will share some strategies that you can follow to increase your cash flow.
1. Cut costs and track your expenses
The number one way to start increasing your cash flow is to reduce the amount of money that is flowing out. This means that you should look for ways to cut any unnecessary expenses. It is not a one-time thing, you should review this – if not every month – then every 2 – 3 months.
Make sure you are tracking all expenses that are paid for by your business. Particularly if you notice that business is slow. Do not forget to include any personal expenses that are paid for using money from the business.
2. Improve your inventory management
Which of your products are selling the fastest? Which of your products are selling the slowest? What are the products that are responsible for at least 80% of your yearly sales?
If you have inventory that is not moving fast, it means that money is sitting on the shelf doing nothing. More importantly, you cannot use that money. You need to free it.
Analyse your inventory. If it is not selling, get rid of it. If necessary, sell it at a discount. I know you paid good money for it, but unless it is selling well, it is getting more and more outdated the longer you hold on to it. Do not be emotional about holding on your products.
If it does not sell, move it out and free up your money. Any money coming in is better than no money. Then use that money to buy products that generate higher sales so that you can increase your cash flow.
3. Increase your sales
Yes, it is true that it can be very hard increase sales. The economic situation, your competitors, customers changing their mind… all these things can make it hard. However, there are still ways to do so. Consider the following:
Create sales packages to increase cash flow
Do you sell products that are often used together? Or products that are often used in higher quantities? For example: shoe polish & shoe brushes and notepads & pens. Or diapers & baby formula bottles and children’s clothes & toys. Can you create a package containing these items? Offer it at a small discount that is less than the price of buying each item by itself.
Increase sales through product groupings
Customers can be encouraged to buy additional products if you position your products in a strategic way. If you buy on the internet, you often see this in online stores. They will tell you, “Other customers also bought” or, “You may also be interested in”. And they show you other products to tempt you.
You can use the same approach in your business. Pay attention to what your customers are buying. Are there certain products that are usually bought at the same time? Position them close to each other. Or create a sales package.
Understand why people buy from you, then sell
What makes customers come to your business? Are you the closest one to their home? Do you sell more products than your competitors? Do you have better quality or better customer service?
Find out the answers to these questions. Then use that information in your marketing strategy to attract new customers. If you have fantastic customer service, why not get testimonials from some of your customers?
You can record a short video (1 -2 minutes) with customers explaining why your business is best. (Consider giving all customers a discount or reward if they agree to give you a testimonial!)
4. Add new products or services
If you have financial reserves – or, if you freed money by selling inventory that was not doing well – consider adding new products or services. This will require you to do some market study. You can start in your own business.
Are there products that you hear customers asking about when they come into your business? Do you hear customers complaining about the quality or service provided by your competitor? This is free market information that you can use to benefit your own business. You can also ask your customers these questions when they enter your store.
Are there products that you can be a great add-on for your own business? For example: if you run a butcher shop, can you start selling particular spices that will increase the flavour of the meat? Or are there customers who may be willing to pay additional money for home deliveries?
When adding new products or services, I advise you to test the market first. Or create a list of customers who want to buy the product. When you have enough customers to make you feel confident, add the product and offer these people a discount if they buy.
For example: when my NGO in Liberia is considering adding a new vocational training course, we use word of mouth to spread the news. Then we record names and phone numbers of interested students. When we reach a certain number and we are confident that market demand is high, we launch the training and call all those that showed interest. We offer them a discount to register for the training.
5. Increase your prices
First of all, find out if you are making a profit on all the products you are selling. Which products are giving the highest profits? Which ones have the lowest profits? Some of your products may even be making a loss.
Secondly, I asked you to make a list of the products that are responsible for at least 80% of your sales. Compare that list of products to the list of products with the highest profits. Are you seeing the same products?
If yes, congratulations!
Now, start experimenting. Customers are buying these products at a fast rate, so increase the price a little bit. Observe what happens. If customers hardly complain, increase the price again. If your customers complain, reduce the price until they stop complaining. But make sure that the final price is higher than what you were charging before.
If there is no – or only small – overlap between the list of fastest selling products and the list of products with highest profits, you may have a problem. You are selling, but there is hardly any money coming in.
Analyse the products that are selling fast but have low profits. Can you create sales packages and include other products that bring a better profit? Can you replace them by adding similar products that have a higher price & profit? Can you offer discounts on the products that have a higher profit?
Note: if your business cannot increase prices because of competition, you need to look for ways to add value. Or find ways to improve your customer’s perception of the value you are offering.
Read what I said in this post about finding out why customers are buying from you. If they are buying because you are the cheapest, how long before a competitor will come and start undermining your business?
Sometimes, if your prices are very low, customers will assume that you do not provide quality. Find ways to increase quality so that you can increase your prices. Or, look for ways to increase customer satisfaction. Higher customer satisfaction will bring in more customers and give you a reason to start charging higher prices.
6. Reduce your assets to increase your cash flow
If you own assets, like a truck or production equipment, that you hardly use, consider selling them. Unless you are 100% sure that you will need these assets, selling them will bring money into your business.
Also, if you are thinking about buying new assets, consider leasing them instead of buying. This will require to have a good relationship with the supplier. Since you will be paying monthly fees, this may permit you to lease a higher quality asset from a higher-regarded supplier which will last you longer.
It is true that – at the end of the day – leasing is more expensive than buying. However, leasing will also save you money, because you will be paying in monthly installments instead of using your cash or a loan to buy the asset. This means that you will have cash remaining that you can use in other ways to improve your business.
7. Form a buying cooperative
If you sell goods, you usually produce them using raw materials that you buy from suppliers. If you are a retailer, you buy the products in bulk from your suppliers and resell them. Are there other businesses in your town or region that buy the same or similar items? Or that buy different items but from the same suppliers?
There is power in numbers. Can you form a buying cooperative that can purchase bigger amounts from suppliers? Suppliers usually give high discounts to big companies. You can achieve the same result through a cooperative.
8. Do cash flow forecasting
To be in control of your business, you need to know what is going on. To be in control of your business cash flow, you need to know how it is developing. A cash flow forecast can help you understand what money will be coming into your business during the next 30 days, 60 days, or even 12 months.
If you understand what money will be coming in or going out, you will be able to prepare your business. You will know whether to do additional saving, whether to do additional marketing, or whether to delay purchases. A cash flow forecast helps you prepare for the future.
You can find many examples on the internet. You can also join me next week to learn how to calculate your own cash flow forecast.