Cashflow can feel like a bit of a leaky business bucket sometimes and has become elusive for many business owners. Weak or inconsistent cashflow is one of the main reasons businesses fail …
If you’re looking to improve cashflow in your business, there are several key areas you need to consider and the leaky bucket is a handy analogy that I look at with my own clients.
“The money you earn ‘flows’ in and the money you spend inevitably ‘flows’ out. You are left with either a profit or loss!”
But sometimes small holes allow money from other areas to trickle out. Often these leaks are unnecessary and completely avoidable, but will often go unnoticed to a busy business owner.
Patching a leaky bucket isn’t just about driving more sales though. Here are a few of the areas that I look at with clients to improve cashflow:
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Revenue: One of the first steps in improving cash flow is revenue improvement via a price increase or an average value of sale increase, not volume of sales.
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Cost of goods: A reduction in the Cost of Goods will help to improve the cash flow situation and is often overlooked. But there are many ways of doing this, such as changing suppliers, negotiating a better deal with them, purchasing online.
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Accounts receivable: Debtors e.g. money your customers owe you. By collecting faster, getting deposits, progress payments, collecting payment at time of delivery etc, are all different ways to improve this figure.
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Inventory reduction: Reduce the average number of days your inventory is sitting around to improve cashflow. Sell off old stock, buy faster-moving stock, get stock on consignment etc. Implementing a stock system, bundling slow moving items (at a discount) with faster-moving items.
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Accounts payable increase: The key is to pay your suppliers slower, while still keeping within their trading terms. Increasing the amount owing to your suppliers keeps cash in your business longer, which can be put to operational use.
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Overhead reduction/expenses: What can be reduced without reduction of required capabilities. Are all personnel being fully utilised? Could you sub-let some of your office space if it’s vacant? Review your monthly costs and see where you can reduce the payment by changing suppliers, getting rid of the cost. Do you have a structured purchase order system in place? And a tracking system for goods received?
There are literally hundreds of strategies that ActionCoach have that can help improve your cashflow across all these areas. Don’t let your hard earned money dribble out of a leaky business bucket.
“Would you like to know more?”
If you’d like to find out more about cashflow and plugging the holes in your leaky business bucket then do give me a call on 07590 584642 or click here to ping me an email and let’s see how I can help you.
