Based on my last post, we talked about cash flow and how important it is in our business start up. (click here to read my previous post) This time we will talk of the simple strategies and business ideas to increase your cash inflow.
Actually, I've combined the personal lessons that I have learned in my business as well as from the books that I have read.
1. Pay your bills on time Often when we start a business we use leverage to our advantage like OPM (other peoples money) and OPT (other peoples time). The problem with leverage is that it is a double edge sword. It can either drown or keep your business afloat.
Hence in using leverage, make sure you pay them on time or you will suffer additional charges that will contribute to your cash out-flow.
Also most suppliers give incentives when you pay on time. I have an example from one of my suppliers, if I pay cash for an entire month, they will give a 2% rebate on all my purchases for the entire month, allowing me to gain extra cash in-flow with not much strategy. Although that cash is only about $220 dollars a month, but it contributes $2,640 of positive cash in my income statement at the end of each year.
2. Register your business start up as a corporation There are many advantages of being a corporation, and being able to declare partial expenses is part of them. For example, I have a friend who uses his business credit card on his travel and meals so that he can declare it as miscellaneous expenses.
There are many ways to improve your cash flow just by little tweaks on business entity for being a corporation. Because I am not a lawyer, I advice you to take legal counsel on your respective cities and countries. It is important for you to know that your business as a corporation has many advantages on how you gain a positive cash flow.
3. Request for advance payments If your service is delivered over an extended period of time then asking for a one-time payment isn't realistic and would be unfair to your customer. Instead divide the payment into segments and request a portion of the payment in advance.
Whether you are a product or service based business, splitting payments in segments allows you to ask the customer for advances. This payment can be a part of regular payment term for your top 20% customers that contribute 80% of your business' revenue.
4. Focus efforts on sales, marketing, and cash conversion Once you focus on sales and marketing, it is expected the gross revenue will increase. But the problem with most business start up is that they are awed by high sales yet, their cash conversions are still very low.
Converting your sales into cash that can be used in your business start up is what is important and not just mere sales and marketing. What can your high sales do when you do not have money to pay your sales people?
In my opinion cash in-flow must be at least 40% of the actual sales revenue of your business or your business start up will be in the ICU (intensive care unit) in a couple of months. Even if you have a fat bank account, sooner or later the leak in your cash flow will make you choose to close down your business start up.
5. Create a business model that allows you to earn money over and over again. A very common business model is real estate. You offer to buy a foreclosed property, clean it up a bit, market it and rent it out for the rest of your business. You can still earn through all the years you will rent it out and your hard work was just done once.
6. Monitor your cash flow I think this is one of the important things to do as a business owner. You need to know whether you will have enough money for your next monthly operations. In fact, in the business start up stage, you should be monitoring your cash flow on a weekly basis.
In monitoring your cash flow, you can then pinpoint the leaks of your business therefore allowing you to make effective-corrective action.
Start with these simple business start up ideas and it will surely help you on your future business success. Continue to brainstorm ideas with your team on how you can further improve your cash flow.
That's it for today, please don't forget to leave your comments below.
I am Jake Bere, a young entrepreneur from the Philippines. I have businesses in Sales and Distribution of consumer goods, Internet Marketing and Multi Level Marketing. I am professionally trained in face to face selling, marketing, and different investment vehicles in the Philippine setting.
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