Benefits And Strategies For Improving Cash Flow
It’s one thing to acknowledge the importance of having adequate cash reserves when growing your business. It’s quite another thing to actually do something about it. The good news is that there are steps you can take to improve your cash flow—without having to borrow money. Let’s look at 4 ways to improve cash flow when scaling up your company.
Keep in mind that we’re not just talking about how much money you have on hand. We’re focused on cash flow—and how to turn the money you spend back into available cash for growth more quickly. It’s what Verne Harnish refers to as the Cash Conversion Cycle (CCC) in his book, Scaling Up. Here’s a visual representation of what we’re talking about. You’ll notice four distinct areas that are part of this cycle. One of the keys to improving cash flow is to shorten these cycles in order to make your money available sooner.
1. Shorten Your Sales Cycle
Start by keeping track of how long your sales cycle is. How long does it take from the time you generate a qualified lead until that lead becomes an actual prospect? Then how long does it take until that prospect actually becomes a customer? Different industries can have different lengths of sales cycles. In your regular meetings, look for ways to shorten the sales cycle. What steps can you take to speed up the time it takes to move someone from a prospective client to a customer? A huge part of excellent execution is tracking important information such as this.
2. Shorten Your Production & Inventory Cycle
If you’re selling a product, you need to have inventory on hand. But the money you spend on inventory isn’t available for you to use for growth until you sell the product. The more quickly you produce the product—and move the inventory—the sooner you’ll have cash on hand to fuel your growth. Look for ways to improve your production schedules (without compromising on quality). And don’t get sidetracked by false “economies of scale.” You may realize some savings by dealing in volume, but the money you save there doesn’t help you if you have lots of cash tied up in inventory.
3. Shorten Your Delivery Cycle
Are there unnecessary delays in getting your product (or service) to your customers? A sale really isn’t a sale until you’ve collected the money. Eliminate delays between taking an order and delivery of your goods or services. One good place to start is by reviewing your order processing. There is no good reason for orders to be sitting on someone’s desk. Look for ways to automate the process.
4. Billing & Payment Cycle
There is a big difference between sending an invoice and getting paid. If you have clients that are slow to pay, find out why. Are their orders being processed properly? People aren’t going to pay if there are mistakes. Can you adjust your billing so that your bills hit your client when they are ready to pay (i.e. end of the month, or whenever they pay bills)? Are there incentives you can offer to ensure prompt payment? One simple solution is to put a specific date on an invoice instead of the traditional “Due Net 30.” For instance, if you invoice on June 1 with “Due Net 30” you’ll receive payment on July 1 (at best). If you invoice on June 1 with “Due June 25” you’ve shaved several days off of the cycle.
None of this is really rocket science. These are just four areas in which you can likely make some small changes and speed up your cash flow conversion. But these things won’t happen on their own. You have to make these things a priority in your regular meetings and that there is a clear designation of responsibility—and a clear deadline for accomplishing the tasks.
Cash flow, of course, is just one aspect of managing your cash to fuel your growth. Click on the “Assess Your Cash” button below to get an overview of what your cash situation is really like. You can only make improvements when you know where you stand.
Image by Gerd Altmann from Pixabay
Need help growing your business? With over 35 years of experience and thousands of companies assisted, Chuck Kocher and The Transformation Company can help you scale your business into a truly exceptional business capable of high growth strategies. Businesses are always changing, don’t let yours be left behind. Stand out with our business and executive leadership programs – designed to challenge and improve your business. Your business will thank you for it. Contact me today for a free consultation! 719-339-9505