“Cash is the life blood of any business”; and “Cash is king!” are two well known statements for business owners stressing the importance of cash.
If cash is essential to all business, why do companies (or families for that matter) struggle with cash flow? Simply stated: They spend more than they earn.
You may be thinking, “WOW, that’s absolutely brilliant!” or more likely, “life just isn’t that simple”.
The problem may be straightforward, but how about solutions? Let’s look at five.
A budget is a plan of a company’s sales and expenses for a given period of time. Creating an annual budget allows leaders to know results needed to meet expenses. This process may lead to making tough decisions.
Word of encouragement: Be realistic with assumptions; monitor and compare results regularly; and be decisive with changes.
To better measure results and monitor performance, a well defined sales process is required. Over the past several years, sales became more ‘order taking’ than creating value for customers and earning their business. A complete sales and marketing strategy is essential in this market.
Do you have a sales process or are you ‘winging it’? What tools are being used by the team? Who are you learning from? Are you attending sales training? Are you as the owner of your business ‘serving your existing customer’ and seeking out new customers?
Controlling the outflow or expenditures is always important and at times, critical. An effective purchase order system is important to controlling costs before they are incurred. Be informed and decisive.
Credit Policy and Process
An effective credit policy establishes boundaries for both the company and its customers. A policy may include: credit application; reference checks with other vendors and banks; credit limits; defined credit terms; and a clearly outlined process.
Knowing your customer is important, especially before they owe you money.
A well defined and followed collection process will improve customer timely payments by 25%. A clear and consistent method of communicating with customers is critical.
Here are three ideas: 1) invoice timely; 2) understand how the customers want the invoices to be formatted, where sent and to whom; 3) call three days after invoice sent to ensure customer is satisfied with work completed or service provided, identify any issues with invoice, confirm payment will be made within terms, and thank them for the business.
Be intentional with how you manage your cash and it will pay dividends!