Perhaps nothing can slow—or stop—your company’s growth more quickly than a lack of cash. Many business experts will say that cash is the fuel that drives your business. Run out of fuel (cash) and your business is stuck on the side of the road.
There are, however, three words that can change your company’s cash position. Well, actually, I have to confess that words themselves won’t do much of anything. If you want to make sure you have enough cash on hand to drive your business down the road to success you need to apply the principles behind these words. Let’s take a quick look at the three words/disciplines that can make the difference: Shorten; eliminate; and change.
Shorten: Many businesses get themselves into financial trouble because the period of time it takes them from spending money to collecting payment is too long.
- The sales cycle may take too long to turn prospects into customers (You’re paying your sales team but not collecting money for goods of services). What steps can you take to shorten the sales cycle?
- The production cycle may be too long. Maybe you have to pay for raw materials you use and then you find yourself sitting on them (inventory) when payment for the raw materials is due. Instead of using cash to drive your business forward, you’re always behind. Are there efficiencies you can find that will shorten production time?
- The accounting cycle takes too long. If your accounting department is understaffed you may be late in getting invoices out. Guess what? People don’t pay unless they’ve been invoiced. How can you get invoicing out more quickly and regularly? Will the cost of hiring an additional person (even part time) result in better cash flow?
Eliminate: No, I’m not talking about cutting back on staff or benefits or “wasteful spending.” I’m talking about eliminating mistakes. There is evidence that the number one reason customers don’t pay is that mistakes are made.
- Mistakes in the product or service offered can cause customers to withhold payment. After all, why should they pay if you don’t deliver what was promised? How can you improve the quality of what’s delivered?
- Missed deadlines can be another reason customers don’t pay on time. Missing a deadline can have financial implications for your customers. If you’re not on time with your delivery there’s no reason they should be on time with the payment. What can you do to improve your “on-time” delivery?
- Mistakes on the invoice are a major cause of delayed payment. If your invoice doesn’t reconcile exactly to your bid, it can slow up or halt payment. Or if your style of invoicing makes it difficult to submit your bill for payment, that can cause a slowdown as well. What can you do to ensure your invoices accurately reflect the estimate and/or the work done? Can you adjust your invoicing process to make it faster and easier for clients to pay?
Change: Sometimes you may simply need to change your business model a bit. Here are a couple of examples of companies that did that.
- Costco is a retailer, but they began requiring membership fees to shop in their stores. Basically, they got customers’ money up front—before they even began shopping!
- Catapult Systems, LLC is an IT consulting firm that used to bill clients every 30 days. Instead, they began billing every 15 days (after discovering that 90 percent of their clients wouldn’t object).
If cash is ever a problem for your business, take a look at what you can shorten, eliminate, or change. It might help you to find cash without having to borrow it from the bank!
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