Running a small business in what we assumed would be a post-COVID world this year has turned out to be a continuous challenge, taking on various strains from last year’s pandemic. A common denominator for many small business owners is steady cash flow throughout the year.
Staying in the green has always been a priority for small business owners. Now, more than ever, you need to take control and manage your finances to ensure long-term growth and sustainability.
To make the most of 2021, here are seven ways you can increase your cashflow and profits:
1. Evaluate supplier and service provider contracts
Consider re-negotiating payment terms or discounts when contracts come up for renewal with long-term vendors. Also, go through the contract to ensure you’re not paying for any services or extras you don’t need.
You should also review your payment terms. If your credit terms are 60 days, rather keep the money in an interest-bearing account than pay early. Don’t be late with payments either as this harms your relationship with vendors who may no longer give you credit. You may also be asked to pay interest.
2. Cut costs
Always look for opportunities to reduce wastage and inefficiency, whether that means moving out of your plush offices or cutting back on printing costs. Today, almost everything can be done remotely and online.
3. Reward prompt payment; chase outstanding debts
You should have a credit control process that focuses on ensuring your debtors pay on time. Send invoices to customers promptly, and chase overdue bills. Be clear about your payment terms. Incentivise clients to pay on time with discounts for early settlement and penalties for late payment.
Take control of the cash coming in. Many small businesses wait for a corporate client to pay them after they’ve dedicated most of their team’s hours for the month and settled third-party supplier bills. As a small business, it’s reasonable to ask for a 50% deposit upfront for jobs that could affect your cashflow.
4. Consider invoice factoring
Invoice factoring supports cashflow of smaller businesses that struggle to offer their customers credit terms of 30 days and more. It’s basically a form of credit where a third-party financier pays you an advance based on an agreed percentage of each invoice you issue. As you receive the money, you pay back the advance and a modest fee.
5. Introduce subscription sales
Do you sell a service or product people buy and use several times a year? You might be able to sell it as a monthly subscription. For example, rather than charging customers each time they need a pool or garden service, you could put them on a monthly contract. They benefit from predictable costs, and you get cashflow each month while securing their business for the year.
6. Speed up delivery
If you get paid cash-on-delivery, look at ways to speed up production and delivery. For example, a new courier company might be able to ship your goods faster than your existing one. This might also cut your expenses if you find that the new supplier has better rates.
7. Get paid sooner
With a wide array of payment options available in South Africa today, consumers have become accustomed to using their preferred method when presented with a bill to settle. For this reason, it is highly beneficial to present as many payment options as possible on your billing document. Choose a single supplier that can provide multiple payment options at competitive prices instead of entering into complex agreements with numerous service providers.
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