Business is a game, but to play to win, you need to understand revenue, profits, and expenditures. Any time these metrics are out of balance, sustainability is affected, and you have to take out loans to perform essential duties like payroll, paying rent, and renewing your insurance.
In some cases, however, you might not be at fault. The business model might be working against you, especially if your invoices run sixty to ninety days before they are paid. With so much time between invoice payments and services rendered, you might be forced to decline some clients because you don’t have enough money to cater to their needs. This is the predicament staffing agencies, and other businesses find themselves. To keep your business afloat, use these seven cash flow strategies.
- Reevaluate your pricing
Are you offering your services for too little? Raising your prices too much may lead to negative cash flow, and that’s a possibility, but according to the psychology of selling, people naturally assume a service is valuable because it costs more. Before you raise your states, find out what your target market can bear, what business leaders are charging, and what businesses with your years of experience charging. Customers who have never taken advantage of your offers will suddenly find the offers enticing. Balance your price with the market, so it doesn’t hurt your business.
- Send invoices immediately
Sales, marketing, and invoices are the blood that runs your business. If you don’t send invoices, you can’t get paid. The quicker you invoice your clients, the faster you get paid. The model could be such that you have to wait for given periods for the company to pay you. This will affect your everyday operations, and if you are not careful, you could find yourself moving from paycheck to paycheck. According to payrollfunding.com, you could either take out a loan or use invoice factoring to keep your business on track. Payroll factoring, also known as invoice factoring, is selling your account receivables and getting up to a certain amount, usually 90%, of what your clients owe you. Your client pays the factoring company, who then give you the remaining amount, less their fees. Your business can match the cash flow it needs to run without incurring high interests or affecting your daily operations.
- Track your finances
To operate effectively, you need to track your available cashflow, and know the anticipated inflow and outflow of cash for each month or quarter. In simple terms, you will know how much money you have at hand, how much you expect within the month, and how much you need to spend to keep things running. Tracking is, however, tasking, especially when you do it manually. If you don’t have an accounting department to take care of his, using cashflow management apps will save you some time. You must enter the correct values if you want a true representation of your finances.
- Consider moving clients to a retainer
A staffing agency provides professional services, and if you have large corporations as your clients, check for patterns. If they need your services every month, for stance, moving them to a monthly retainer will help you increase your cash flow. You must agree on what will happen if they don’t need your services for a month or two. Monthly retainers give you a more accurate forecast for your monthly revenue which makes it easy for you to run your business and meet your needs.
- Renegotiate terms with your suppliers
Besides payroll, there are other expenses you need to pay each month. Out of these, check which ones you can delay for a later date and which ones are best paid in advance. For instance, instead of paying your lease every month, you can renegotiate with your agent to pay three months upfront when your invoices will clear. Have a clear indicator of how your cash will flow before getting into such an arrangement. If you miscalculate your predictions, you may end up in more debt. If customers pay early, it’s customary to give them a discount. Use the same principle and ask your suppliers for discounts when you clear their invoices early.
- Make it a company priority
Employees are motivated by the targets you set. Making cash flow everyone’s priority will ensure all departments are working together to achieve this goal. Your sales team will be more aggressive in bringing in new business, while your collectors will work extra hard to ensure all invoices are paid on or before they are due. If you pay your salespeople on commission, you can change the terms such that commissions will only be paid once the invoice is cleared. This will motivate the sales team to prompt their client into paying early, which will support capital objectives.
- Have a business buffer account
Most businesses have a buffer account that can last them for a mere 27 days. Using your cash balance and cash outflow, determine how much you need in a buffer account to keep things moving. If your clients pay after three months, your buffer should cover at least four to six months of your recurring expenses. Building a buffer is not easy, but once you have one in place, you will operate without straining, taking short-term loans, and delaying important payments. Keep adjusting your buffer account as your needs change.
Improving cashflow is only one part of the equation. To make it sustainable, you must identify cash leaks that suck cash out of your business. Mostly, these will be small expenses you can easily ignore, but in truth, they add up quickly and cause havoc. These could be anything from cash collections on sales that you can speed up, or cash outflows you can slow down. One strategy may not be enough to maintain positive cash flow. Determine the best strategies to use for your business model and come up with an implementation plan. Keep your plan flexible because your business needs will keep changing. Review the plans monthly, quarterly, or annually and see where you can adjust and improve.