14 Ways to Optimise Your Cashflow

Your number 1 priority is a business owner, is survival. You must ensure at all times, that you can afford to pay wages, pay suppliers, pay your taxes and fund your growth. If you have no cash, you don't have a business.

Every founder will face a cashflow crunch at some point. But given it's your number 1 priority - how much time have you spent learning about it? Thinking about it? Often the answer is… not enough!

So what do I need to know?

So today I'm going to share 4 principles you need, and then 7 ways you can improve your cash coming in, and 7 ways you can slow or reduce your cash going out.

If you're somewhere you can take notes - grab a pen, and get ready to learn!

Lets get started...

The 4 Main Principles

These are the main 4 principles you need to keep in mind to optimise your cashflow. If you don't stick to these principles, your business wont work how it should.

Shorten your cash conversion cycle

This is all about how you can reduce the time it takes to spend a dollar to get that dollar back from your customer. What can you do to get paid faster by your customer, and what can you do to slow your payments out?

Stop being the bank

You are a business, not a bank. The number of people I know who pay out faster than their clients pay them is crazy. If you're getting paid in 30 days you shouldn't be paying others in 14, don't be a bank.

Every day you can knock off your average AR days is meaningful.

If you have a 3.65m revenue business, and can reduce your accounts receivable days from 30 days to 29 days, your cash at bank will increase by 10k, by 7 days, 70k, and by 14 days, 140k. Why should should that money be sat in your customer's bank account? Knocking days off your AR can make a huge difference.

Cashflow forecasting is must to go from 7 figures to 8 figures

A weekly update up to to a detailed 90 day forecast is a bare minimum for your business, with a 12 month cashflow prediction being ideal. Now you might be wondering why, because it that long to spend a dollar to get a dollar, your cash conversion cycle is hopefully within a 90 day range.

7 ideas to improve your cash coming in

Uplift Your Pricing

This is a rapid way to increase your cash coming in, by simply uplifting your pricing. You can see a noticeable increase in the cash you have coming in.

Upfront Payments

Encourage or require customers to pay a deposit, or pay upfront entirely before you start work. It's a great way for you to get some money together before you start spending it.

Speed of delivery

If you have to wait until work starts to get paid - what can you do to bring a small element forward so you can bring first invoice upfront? So you can get paid quicker and build a more stable cashflow model.

Incentives

Consider offering an incentive for early payment (around 1-2%) but could even be normal price. So that paying upfront is seen as as "saving" as there is no penalty. Make the price for days overdue become larger to give an incentive to have payments done sooner.

Invoice timing

Bill on the 1st of the month, to be paid in the middle of the month. So all services expected to be covered by that month have been specified, and you know when you'll be paid. You can make any necessary changes if plans change during the following month. Do not assume that payments are made on a 30 day basis.

Debtor management

Get a structure in place to manage bills, e.g. an automated message to remind when a bill is due, and a follow up reminder set if the bill doesn't get paid after 3 days. You are setting expectations, someone doesn't want to have this conversation every month, set an expectation, so your debtors pay you on time each month.

7 Ideas to reduce or slow your cash going out

Creditor terms

"Sorry we only pay on 30 days" , why should your customer get paid faster than you? Establish a longer payment time for your business. Like I said in an earlier point, you shouldn't be acting like a bank. Try to minimise the time you take to get paid, and maximise the time it takes for you to have to pay.

Scheduled pay runs

If you only do Accounts Payable twice a month (for example the first of the month and in the middle of the month.) Then you won't pay invoices from the 2nd to the 14th, or the 16th to the 30th of the month. This helps you manage your customer expectations.

Build a Zero Based Budget

Take the opportunity to build zero based budget. This means you are rebuilding every line, and questioning every cost your business has. You'd be amazed to see how many cost saving opportunities you have. It's best to start with largest costs and work down.

Slowing your cash going out

If you have any assets that aren't being used, then you have an opportunity to sell it (or consider leaseback options)

Renegotiate your inventory

Now not every business has inventory, but for those of you that do, this one is for you. Take the opportunity to renegotiate your terms with one of your suppliers every month, so if you have 12 big suppliers, you can renegotiate with one a year. Any clear, slow moving stock is perfect to renegotiate. If you are a large buyer, you could take advantage of getting a discount on your inventory.

De-couple variable cost services

If you have a third party agent who sells your product, and they take a percentage of revenue, then you should look to decouple this, and turn it into a fixed cost. This means that if your business grows, the cost of the services doesn't increase with the growth. So you are paying them based on the service rather than giving them a percentage of revenue, and giving up a large sum of your revenue.

People

People/staffing costs are the most expensive loss for most of us. Is there a way you change staff mix to better match to your demand? This could involve using contractors, so you can hire them out when you need them, without paying a fixed wage.

Also consider making an Employee Engagement Survey to identify issues, and act on them to reduce undesirable turnover.

One more thing to consider with staff is when doing a lot of recruitment. Can you hire an internal recruiter on contract, so they work for the period where you need them, to do all your recruitment for you?

Ok.. so here's a question to ask yourself...

Now I know that's a lot of information, 14 ideas and 4 principles in total.

If you're wondering how you can optimise your cash flow, here are some questions you need to ask yourself:

• What can you do to improve the speed of your incoming cashflow
• What can you do to slow down or reduce your outgoing cashflow
• What is your plan to build your cash reserves allowing you to have more cash to deploy towards growth?