Whether your business is booming as part of an industry thriving in today’s economy or suffering as part of a sector affected by the oil slump, cash flow can be an ongoing challenge. For growing businesses, cash can actually be extremely tight as you spend more to fulfill increased sales. If you’re feeling the squeeze on cash flow, consider these ideas for building reserves, improving margins, focusing spending and creating leverage:

Building Cash Reserves:

  1. Look for ways to lower rent. Consider combining facilities or sub-letting extra space.
  2. Review your insurance coverage to either reduce overall rates or at least adjust payments to your current sales and payroll levels.
  3. Stop unprofitable lines of business.
  4. Slow or cease spending for improvements in facilities and equipment.
  5. Sell unused or unneeded assets.
  6. If you’re in a position, consider paying off debt so you can stop paying interest.
  7. Offer cash discounts for prompt payments, but watch how much profit margin you are giving up.
  8. Invoice weekly, or better yet daily, and work on keeping cash lockup (WIP and AR) 10 days better than your best competitor.

Improving Margins

  1. Renegotiate prices and payment terms with your suppliers.
  2. Consider outsourcing or partnering for services.
  3. Shift sales team pay toward variable compensation.
  4. Before cutting manpower, consider implementing a small pay decrease for labor and administrative staffs, or look at reduced hours and flexible scheduling to soften the impact of more significant pay decreases.
  5. Look for ways to cut back on energy, fuel costs and expenses. Look into government incentives/tax breaks for the energy-saving projects you may undertake.
  6. Determine your optimum inventory level for the current situation.

Focusing Spending Where it Will Make the Most Impact:

  1. Spend on marketing first, then improving services, then sales.
  2. Spend money to retain and win quality customers. A quality customer should have current and long-term value to the business.

Creating Leverage:

  1. Implement a referral program to leverage satisfied customers to gain new customers.
  2. Consider buy, build and borrow options.
  3. Consider a merger or acquisition that brings strategic value.
  4. Create partnerships and alliances that reduce cost of operations and increase market reach.

Need help implementing these cash-flow management strategies? Contact Doeren Mayhew’s CPAs and business advisors to help you better manage your cash flow.