A business’ cash flow is by far the most underrated area in most micro and small businesses.
It is no wonder then, that startup failure rates are high - 9 out of every 10 startups fail
Of course, startup failure is not planned by an Entrepreneur. People who venture into the startup world usually know what they want to do, and at most, they have a plan, that if followed, they will have eventual success. These startup Entrepreneurs have done their research and have come to the realization that their product or service will indeed solve real needs in the market. And so, they set out on their entrepreneurial journey.
But success as an Entrepreneur depends largely on Money Management. Talks about money remain somewhat taboo, and startup Entrepreneurs’ attitude to financial management is paramount to their success in business. As a result, cash flow should be every founder’s key focus in the early years of the business and beyond.
Our internal business development statistics show that funding, or a lack thereof, and financing a startup, is usually the reason a good start-up idea does not launch effectively. No doubt, startup Entrepreneurs can be held back by poor cash flow, or no cash flow. And sometimes we even have to break it to some Entrepreneurs, that relying on cash from an investor would be a bad idea for their start-up.
Entrepreneurs eager to get their business off the ground are excited about what they can bring to the market. Their focus remains largely on their new product or service, that they either forget or ignore the money issues that come constantly with a new business, especially if a startup budget is not done to at first determine initial, immediate costs.
Here’s a point before we start that we’d just like to throw out there - A non-paying customer is more costly than no customer at all. This is a customer that makes you put all your effort, time, money, and resources into a project and does not pay!
As you put cash flow management on your to-do list, here are some ways you can start improving your cash flow:
1. Send an invoice ASAP! We recommend that you begin invoicing your customers before you even start the work. That way, they know you’re serious and we get the embarrassing money talk out of the way. Be very clear in your invoice about your terms and conditions. Set your payment terms and your customer MUST accept them.
Once you have set your payment terms, at no point should this be up for negotiation. Get serious about the way you conduct your business so that your customers take you seriously. Make sure to price what you’re worth and do not ‘feel bad’ about setting your prices or your terms.
2. Stop working for free! We saw this recently in a social media post, and thought we’d include it in our tips for improving cash flow – this one can apply for service and specialist providers - when they ask if they can pick your brain for a moment, tell them sure, no problem, just pick a payment method first. We know it sounds a bit crude, but...think of how much money you’d make if you’d charged those who’d pick your brain before!
3. Do you know what sells a lot? Convenience! Make it convenient for your customers to do business with you. COVID-19 taught us many things; a key takeaway is that customers appreciate and prefer convenience. Think about your buyer’s journey and experience. When customers come across your product, let’s say on your social media page, what’s the next step if they’re interested? There should be a direct link or access to getting in contact with you or purchasing the product/service without much hassle. Payment should be a breeze and the option for delivery, easy as well. Once the customer has to wonder about price, or they try to reach you and there’s no answer, or they try to cash out and they are confused about the entire process, then you’re giving that customer away to your competitor without even as much as a fight. Make your purchase and payment options more convenient, and this will certainly improve your cash flow.
4. If you’re a product-based business, you would no doubt have lean inventory. This can be inventory in your storeroom or on your shelves that you’re not generating any cash from. You can convert this inventory to cash for your business. Pushing this unbillable inventory will help improve your cash flow.
5. Cash flow is more important than profit.
To improve your cash flow, you can also shift elements (like your expenses) in your cash flow from fixed to variable where there are benefits to be realized from switching to the variable. It may be beneficial to have something that is more flexible and responsive especially in times of falling revenue.
The key is to build your business post-pandemic, around variable costs and to push to rely more on them. If closing your business is not an option, then it is important to stay afloat.
There are also a few strategic measures that we can recommend for improving your cash flow. However, these measures will not help to immediately improve your cash flow and it will take time to develop, implement and reap the rewards. If done right, they can be quite successful.
Strategic Measures
6. What products or services can you convert to a subscription-pricing model?
Think about offering a Subscription service or having a Subscription-based business model.
In order to successfully implement and use this model for your benefit, you will need to assess the lifetime value of a customer for your business, and what you can do to enhance it.
Business models with recurring and subscription-type services are able to generate short-term and long-term cash for their businesses.
7. Another way to create or set up your business for a steady, predictable cash flow is to create recurring contracts.
If you are able to lead your customers toward contractual obligations to use your products and services for a prolonged time, this will drive cash into your business at predictable, recurring times.
There are many other ways by which you can improve cash flow in your business. If you would like a Business Development Officer to discuss more strategies and tips with you, please reach out to us at @868 488 0507. You can also purchase a copy of our Entrepreneur Crash Course Mini Guide on Cash Flow here: https://shop.thetimelyentrepreneur.com/product/entrepreneur-crash-course-box-set/
