Create a systematic way to manage both your cash in and your cash out. If your accounts receivable collections are slow, now is not the time to add a lot of expenses. Manage your cash flow both ways and in relation to all aspects of your business. Be willing to quickly dial down expenses if revenue is sluggish.
- Beware increases to your fixed expenses. They are hard to cut if the business should need to. Whenever possible, build flexibility into your fixed-cost structure. This includes: (1) Extending your financing’s amortization schedules (in 99.9 percent of cases you can always choose to prepay if you want). (2) Writing “outs” into your vendor contracts or other stop-loss provisions should you need to cut expenses. (3) Get more from what you have before you invest in more.
- Watch your sales cycles and make sure you’re not building up assets, inventory, or staffing at a time when business is about to slow down.
- Consider not prepaying too many expenses unless you are given a business reason to do so (i.e. a meaningful discount). Sometimes it’s better to pay monthly to guard cash flow rather than pay annually up-front.
- Consolidate your purchases and negotiate better pricing. This is especially important for companies that have gone through a recent growth spurt. Too often companies pay prices based on purchase volumes they exceed.
- Get competitive bids from vendors. Even if you plan on staying with your current vendor the very fact that you know and they know you’re getting outside bids will keep their pencils sharp and help ensure you get better pricing.
- When needed, cut fast and cut hard. Don’t stretch out cuts that are necessary; take off chunks and get on with your business.
- Always pay owners a salary for the meaningful work they do (otherwise you run the risk of distorting the true cash position of your company).
- Build healthy relationships with your vendors and if needed, work out win-win ways they can help you out of a cash flow crunch.
- Train your staff to ask for and get discounts. Having a short training course on how your team can get discounts plus consistently recognizing team members who do this pays off with increased cash flow. This one idea alone could reduce your variable expenses by 5 percent to 10 percent.
- Using the 60 and 120 day view of cash needs. Always be looking around the next bend. (And remember secret number two — your business cycle — to be prepared for cash flow shifts on the horizon.)
- Cultivate fiscal discipline as a core company value. Remember, symbolic choices you make or allow as the business owner will become a core part of your company.
David Finkel is the best-selling author of more than 40 books and courses, including The Maui Millionaires for Business. He is a successful business owner who has bought, built, and sold several multimillion companies over the past 10 years. To learn more about his tools for business owners, visit him on the Web at Maui Millionaires.