Article written by Graham Fitzpatrick, Business Advisor, Western Sydney Business Centre.
One of the big issues facing many businesses at the moment is cash flow. Since the pandemic occurred and following on from lockdown, many are now operating on credit which is not sustainable. Like always, cash flow is key. But how do you improve your cash flow and stop relying on credit?
There are a number what we call “Cash flow change levers” that can be applied to improve your cash flow. The first set of levers are for cash coming in. “Cash In” levers include Pricing, Volume and Debtors. When we look at pricing, we can look at changing prices or we can add value to what we sell.
When we look at volume, we can try to increase the number of potential customers and increase the number of products or services we sell. You could look at selling into new markets or territories and make improvements to your sales process. We can also improve our cash flow by invoicing earlier and following them up. You can also try reducing your debtors credit terms and even offer a small early payment discount.
The next thing is to look at your “Cash Out” Levers. You can start by looking at your assets. Assets that are underutlised could be sold off. While you could refinance or sell and lease back other assets to help your cash flow. Expenses is one of the quickest ways to help you cash flow as you can reduce discretionary spending and look to reduce your overheads. Look at your inventory and reduce the cost of stock and materials. Clear obsolete and slow-moving stock and amend your ordering processes. You can also try negotiating better payment terms from suppliers.
The last thing we could look at your is your staffing but try to avoid it if you can. Changing your staff mix and looking at your hours will help your cash flow. This can be done matching staffing levels to demand. Reducing high staff turnover can also help with cash flow so maybe review your employment process. Even if you just look at one of these cash flow levers you should start to see positive results.
