Take some steps now to grow your bank balance later
About 99.99% of all businesses we work with would like to improve their cash flow position. There are several ways to do that, and we cover various strategies that can help improve profitability for local businesses on regular basis within these newsletters. But, it is always helpful to review some basic strategies.
Without a strategy, your business is subject to hope and luck, and those aren't two consistent cash generators. Today we will cover six basic ways you can improve your cash position in business, but first:
Remember that the key to identifying areas of needed improvement or successful activities is record keeping. Accounting software, a daily ledger (covering daily sales, the day of the week and other pertinent information like events occurring and weather), Point of Sale Register Data, and other basic information can help you make more informed decisions as a business person. Your personal preferences can taint business decision making, so start your improvement strategies with a solid basis in facts generated from complete records.
Now, on to the strategies:
1. Increase Margins- Although it is easier to assume that all merchandise or services should have the same margin or "mark up", it is important to distinguish a perceived customer value and appropriate price strategyfor independent items or services. To improve overall gross margins, businesses should emphasize the sale of products or services with higher margins built into their price. Through display, marketing, bundling items or presentation, higher margins on certain items can allow businesses flexibility in other areas. When businesses can reduce product costs through efficiency, sourcing, buying practices or other strategies and maintain retail pricing, margins can be enhanced. Occasionally, prices must be adjusted to reflect the reality of costs associated with products or services and allow for the profit necessary to maintain and grow a business. Additionally, prices for "the same thing", especially within a small geographic region, must be competitive to maintain sales volume.
2. Decrease Costs- This is easier said than done, but businesses should make a detailed list of costs incurred for products or services sold (or other costs) and prioritize importance. Find efficiencies in variable costs while being cognizant of the impact of cost cutting moves on your brand and market presence. When applicable, seek cost saving measures with suppliers. However, be cautious of buying programs that tie up more cash in inventory than you can sell over a reasonable time frame. If necessary, renegotiate fixed business costs. Look at your low Return On Investment (ROI) items and phase them out of your business model.
3. Increase volume on existing profit centers- If you have something that makes you money, sell more of it… This sounds simple, but it is surprising how many businesses fail to think in these terms as they are makingbuying or marketing decisions. Concentrate on increasing the quantity of products or services you are selling on a per customer basis. For many businesses, increased sales per customer strategies are directly linked to increasing the time duration a customer spends in a business. Some businesses, like restaurants, are more concerned with "turning over" their customers to allow for more sales. Encourage "group" buying or consumer referrals to your business to increase sales volume, and remember to market to your existing customers to improve buying frequency. It is a lot easier (and cheaper) for a business to encourage an existing customer to spend more often than it is to establish a new customer relationship. Increasing visit frequency can be as easy as educating your sales force about upcoming activities and encouraging them to relay the information to customers.
4. Find additional profit centers- The only thing constant in the world of business is change. Businesses must constantly seek new profit centers that improve their cash position. Innovative businesses develop new products or services, update existing lines and track industry trends. Smaller businesses can form mutually beneficial relationships with other small businesses that allow them to consign products or services and create unique offerings with better profit potential (without tying up cash). Look at other businesses in like size cities within your industry and employ an R & D (ripoff and duplicate) strategy for things that create profit potential. Updating your professional skills through industry specific training programs may help you identify ways to make or save funds through innovation.
5. Create new basis generators- Sometimes changing how products or services are offered can alter your costs and/or profit margins and produce a better cash position for a business. Term contracts, clubs orexclusive offerings over an extended period can front load a consumer cash expenditure while offering a business the opportunity to plan for future goods or service delivery more effectively. Gift certificates are rarely used by 100% of the individuals the certificates are issued to, and thus they create the potential to increase your overall margins while avoiding additional product costs. Find ways to work with organizations or other businesses to create a stable frequency of use for your business (a restaurant meeting every second Tuesday of the month, for example). Concentrate on finding ways to create traffic for your business on "off" days or seasons.
6. Assert market dominance- Identify external volume generators and implement plans to capture the market. If there are events, activities or wholesale changes that can improve the volume your business can take advantage of, you need a plan to convert those those opportunities into sales. Find ways that you can expand your presence outside your own four walls. By working with different agencies and businesses to showcase your products, services and expertise, you can expand your brand presence. The old marketing rule was that a customer must see your brand three times before they recognized who you were and what you did. The new rule is that a customer must interact with your brand 30 times before you gain consistent market recognition. Small businesses are generally more involved with the community, and they need to use that involvement to generate a competitive advantage. By planning and executing strategies that take advantage of exterior market drivers, you can assert a level of market dominance that provides additional sales.
Within your specific industry, you may have some strategies listed above that are more applicable than others. The goal of a short newsletter article like this is to get you to look at these different areas and apply relevant strategies to your business model. As the market continues to change, a strategic review for a business is important, and constant reviews can help keep your business relevant and your cash flow healthy.
The most important theme above is the need for businesses to set aside a little time to think strategically about increasing their market share, and then follow up with execution of your strategy. Create work plans, work through a calendar, assign responsibilities for executing tasks and record the impact of your different activities. Over time, you will find that a little extra attention to your cash flow will ease your stress and generate higher inflows. If you need to bounce some ideas of people (or you want to determine the health of your current cash flow) you have some good local resources available locally, including the Small Business Development Center at ESU and Emporia Main Street.