Our economy is changing rapidly and there has never been a better time for your business to do a health check. Everything seems to be rising for those running a small business.
You’re battling rising costs of inventory, an increase in payroll costs, what you pay for transportation such as our lawn care clients and of course rising interest rates. Those interest rates not only affect you as a business but are ultimately causing your customers to rethink their finances.
Many experts have indicated that these economic conditions could last for some time. Before it gets too late and you find yourself in a troubling situation where hard decisions need to be made, it is a smart move and a wise investment of your time to hit the pause button and analyze anything affecting your cash flow.
Cash flow can be complicated for a small business but here are a few tips for addressing some of the more obvious culprits of negative cash flow.
Review pricing for products and services
We have found over the years that many of those running small businesses are hesitant to raise prices when needed. One of the main reasons is an unwillingness to ask customers to pay more for their services. Many feel that by doing so, they will upset the customer and either damage that relationship or lose that customer altogether.
However, there comes a time when your cash flow and profits will depend on the proper pricing of your services. We handle debt collections for lawn care businesses, as well as others such as professional plumbers, electricians, and others in the trades that rely heavily on transportation to conduct their work. Many have indicated that they needed to adjust pricing to maintain a profitable business.
Now is the time to analyze your pricing strategy and make the appropriate adjustments. Every industry has different profit margins so work with your accountant to price your services appropriately.
Analyze marketing efforts and expenses
While the economy seems to be changing, this may be the best time to not only review your marketing and outreach but it could also be a great time to invest more in your marketing efforts.
Many small businesses continue the same approach year after year without taking the time to analyze if they are effective. It’s time to hit the pause button with your team and see what results you’re gaining from any outreach efforts. Identify new areas and methods to find new customers because in the end, bringing on new clients (that pay…) can only result in improved cash flow.
Look at your inventory strategy
If you work off any type of inventory for your small business, this will be a great time to analyze how you address the numerous challenges of keeping products and supplies on the shelf.
You’ll need to address the fine balance between the ongoing supply chain crisis in this country, keeping too little on the shelf, or having too much inventory. Once again, our lawn care clients we handle debt collections for are a great example. Many of them maintain inventory of numerous supplies such as fertilizer and other lawn care products. Not only have these prices fluctuated but the availability of certain products are a challenge. And that goes for many types of small business. While you don’t want to run out of inventory that helps you serve your clients, you also as you well know do not want to maintain an overabundance of supplies because that is just cash sitting on the shelf.
The bottom line is to work with your suppliers to identify how you can maximize your inventory without tying up much-needed cash flow.
Your cash flow is in your accounts receivables
Now is the time to get serious about your accounts receivables. If you haven’t yet…
If running a small business during a pandemic didn’t cause you to button up your accounts receivables, maybe a slowing economy will. While many people’s employment status changed during the thick of COVID-19, there was relief available through a series of stimulus checks. But we will not have that luxury as the economy changes.
There will be a handful of your customers that will have to face difficult financial decisions. And you need to have the systems in place to deal with that. Depending on the size of your business, it won’t take many late or nonpaying customers to drastically affect your cash flow. So button up things now.
Review the following to improve cash flow:
- The frequency and timeliness of invoicing your customers.
- Payment terms and expectations.
- Follow-up procedures for non-payers, including statements and follow-up phone calls.
- All methods for accepting payments.
- How many customers are late paying you right now? Aging of accounts.
- Collection procedures for those that have not paid.
- Choosing a collection agency to maximize your debt collection efforts.
- Using that collection agency effectively.
- Not delaying turning your accounts over to that collection agency.
If you’re paying attention to your small business and conducting due diligence in several areas, you’ll be able to stay on top of cash flow in even see improvements. And don’t forget how effectively using the right collection agency can improve cash flow and keep your existing customers happy.