In my last post, I suggested several “price” related ideas to keep you and your business financially solid during these challenging times. These focused on the revenue side of the equation; raise prices, negotiate multiyear contracts and mine existing customers.
In part 2, I want to suggest three more methods you can easily implement to improve financial performance and cash flow. The old adage that “Cash is King” has never been truer!
Strategy 4- Accelerate receivables
If you currently offer open billing terms to your customers and client’s, implement a “pay on completion” discount. A 2% incentive for cash on completion can be beneficial for both you and the client. You don’t need to send invoices, make collection calls and most important, you have cash NOW! Your internal bookkeeping workload is reduced as well as costs. The client saves money and must ultimately pay anyway. Set your business up to accept credit card payments if you haven’t done so. This can also aid in accelerating the cash to cash cycle!
Strategy 5- Reduce ASSETS
Most businesses accumulate an excess of idle, infrequently used assets, whether it is parts, supplies or equipment. All of this may have been useful in the past. However, if it is parts and supplies that have not “turned” in the past 6-12 months, consider taking a deep discount to move it out. If it is capital equipment, can it be sold or scrapped? Auctions, Craigslist and other surplus outlets abound for disposal of these items. In my experience, these assets will just continue to devalue over time while taking up space and time to inventory. The “rainy day” when that item is needed often never arrives. Having a portion of the value back in cash reduces the need for borrowed funds and simplifies life in general.
Strategy 6- Improve and document work processes
Are your best people able to do more work and generate more billable revenue? If so, do you know what they are doing differently to get work performed more efficiently? The easiest way to increase profitability and cash flow is to document best practices. Train others on those best practices and insist that they implement them all the time. Create a checklist, either paper or electronic, of process steps for the most common jobs or projects and have it completed by for each job. This can also serve as a quality monitoring system to verify for the customer that the work contracted for was fully completed. Productivity of the rest of the group should improve close to the level of your best performers within several months of implementation.
Conclusion
Sustaining and growing your business in good times and bad is always a challenge. If you work on both enhancing revenue, improving productivity and increasing cash flow, you can thrive in the tough times and move out aggressively in the market when the economy recovers. Knowing what to do is the easy part. It takes leadership to sell these improvements to your people and your customers/clients. The question remains the same; do you want to stay in business? If so, be bold and take action. If not, well, the choice is yours!