There are three ways to increase cash flow:
- Cut costs
- Liquidate assets
- Increase sales
These 3 three ideas will inject some much-needed cash to your business to meet payroll, pay your rent and utilities.
The economy is currently in a challenging period. Many companies have seen a major decrease in customer traffic to their stores as more people stay home and obey the current shelter in place orders. Unless you’re Walmart or Amazon, you’re probably dealing with a cash flow crunch right now.
There are things you can do to ensure your business weathers the storm.
Cash is king. Take a closer look at the following three ideas on how you can inject some much-needed liquidity into your business right now to meet payroll, pay your rent and utilities, and navigate these challenging times.
1. Cut Your Costs
Cutting back on spending is the first measure you should take to manage your cash flow shortage. A business that is spending more than it’s earning won’t last very long. There are traditional methods to cut your expenses. Much like you would do when putting together a personal budget, make a list of your monthly expenses, including, utilities, marketing, and advertising, rent, payroll, and taxes. Start by running your numbers through a cash flow calculator. This will help you determine if your costs for a specific fiscal term are too high. Next, input your figures into accounting software to run reports to see details about where your money is going. Trimming back wherever you’re able to can help ease the pressure.
But for service or manufacturing businesses that operate on a very lean budget already, the traditional method of cutting costs may not provide much help. Cost accounting can help find and target other areas. Cost accounting is complicated to grasp for the average business owner. It’s best to consult with your accountant when using this method. But to give you an idea, using cost accounting to reduce spending works because you’re analyzing other costs:
- The direct costs of the product or service you sell, such as material and the labor costs for manufacturing or providing it.
- The indirect costs that aren’t directly tied to the product but still required, such as overhead or marketing expenses.
- Fixed costs that don’t change, regardless of how many services or products you sell, such as a warehouse lease or employee salaries.
- The opposite of fixed costs is variable costs which change depending on how much you’re producing or selling, such as materials and shipping.
Cost accounting is critical to pinpointing your spending when you manufacture or produce your own products. It’s also useful for determining how much you should charge for your products or services to make a profit.
2. Liquidate Assets
If you sell products, you probably have a large amount of your cash invested in the assets you hold, including the inventory you sell. One of the fastest ways to raise cash for your business is to liquidate assets. These can be inventory or they can be other assets such as property. If you happen your business happens to own commercial property, this can be leveraged to increase your cash flows. Not only can it cost more to rent commercial property, but you can turn around and rent square footage in your own building in order to raise capital.
If you don’t hold any real property but have inventory you can liquidate, here are a couple of ways you can turn that inventory into cash:
Have a Sale
Take a look at your inventory and sales reports to determine which of the products you sell are not performing well. These products should be the first to get marked down and go on sale right away. Strategically price your products. You don’t necessarily have to sell your best sellers at a discount. You could offer a small discount on your best performers to encourage customers to shop and reserve the deep discounts for everything else.
If your store is online-only, a virtual sale may be easier to manage. You can go in and physically discount products. Or you can create a landing page of all the products on sale and categorize them by a certain percentage off. For example, you can have a page of products that are all 50% off and another page of products that are 15% off.
If you have a brick-and-mortar store, you can tag items with colors denominating the discount level. Or for the biggest impact, promote a sale where everything out is discounted and hide the products you don’t wish to sell at cost.
The key to your sale’s success if to market it widely and in advance so as many customers as possible are aware of the sale. And run the event for a limited time — a two to three-day sale may encourage customers to buy fast before it’s over.
Negotiate With Vendors
If you’d rather avoid running a sale or have products that may cause you a serious loss if you discount them, talk to your vendors. Your vendors are your business partners. Good ones understand they’re in it with you for the long haul. If you share your current cash flow struggles with them, perhaps you can come to an agreement where they take back some of the product and give you a refund.
You can apply the concept even if you don’t sell a concrete product. Companies selling services such as digital marketing, web design, or graphic design can run a limited-time sale on their services, or markdown their online webinars or ebooks to raise some cash.
3. Grow Your Customer Traffic
The key to improved cash flow is fewer expenses and more sales. Once you address and reduce your company’s spending and clear out poor-performing inventory, look at how you can attract more customers to your business website. You can do a lot to attract new customers with a little cash if you’re creative with your online marketing budget.
Take the time to improve the user interface (UI) and user experience (UX) for your site. A website that your target customer identifies with and finds easy to navigate should be a priority to ensure they can find what they’re looking for without too much effort.
Use the tools available to you, such as Google Analytics and your web host’s backend traffic statistics tools to examine who is visiting your site and why. According to AGI Training, knowing how to analyze a website’s data can help business owners understand “who is visiting their site, how long they are visiting, which pages they are looking at, and much more.” Once you know who your target customer is and what they’re looking for, build an experience that turns them into paying customers.
Increasing Cash Flow Takes Strategizing
Cash flow shortages require quick and calculated action. Look for places where your money is parked and not performing, such as inventory, and liquidate the items. Cut back on your spending wherever you can. And find ways to grow your customer base (and sales) to make up for the shortfall.