From Red to Black: Proven Strategies for Hacking Cash Flow

It’s often been called the “lifeblood of any business.”

And how fitting that phrase is, because without it, any business, no matter how sexy or how packed with potential, is dead.

I’m talking about cash flow.

Many entrepreneurs and business leaders focus on the wrong things, (eg. product development) to the detriment of their business. For example, they’re so in love with making the best product, packing it with cool bells and whistles, not realizing they’ve already bankrupted the business.

If there’s one thing every business leader should be eagled-eyed on, it’s cash flow—the interplay of values, the numbers, and figures that go in and out of the business.

In this post, we’re going to look at strategies to keep this cash flow healthy and at an optimum level.

The 3 Hacks To Go From Red To Black

#1 Increase cash inflows

For any business to survive, it has to make sure that money is flowing into the business. For most, this happens at the instant when a product or service is sold.

With this in mind, here are some of the ways businesses can increase the influx of cash:

  • Increase the number of customers

Increasing the number of customers, (and therefore also bumping up the number of transactions), is not just about getting new people through the door. It can also mean offering new products or services to sell.

Add new revenue streams. Explore new product lines or services that align with your core competencies, and target customer base, and do not require serious capital outlays. This simple diversification can provide additional income sources.

An expanded customer base can also be achieved by expanding the reach of your marketing and ads. Low investment channels—like social media, digital platforms, and guerilla marketing—are cost-effective ways to create awareness for the brand and invite more new customers.

  • Increase the frequency of transactions

Customers do business with you and stay loyal if they realize you are offering them a good deal. Perform a price analysis and ensure you’re charging a fair price for your products or services. Don’t go for the quick buck, selling at high prices but losing subsequent transactions. Consider market trends, competitors’ prices, and customer demand to strike the right balance between profitability and competitiveness.

Consider the “lifetime value” of one customer. When making a choice between high prices or repeat customers, choose the latter.     

Implement a loyalty program that rewards customers for their continued patronage. Offer incentives such as points, discounts, or exclusive perks that can be redeemed with future purchases. This fosters customer loyalty and repeat business.

  • Increase the size of the transactions

Identify opportunities to upsell or cross-sell to already existing customers. Offer complementary products or services, bundles, or loyalty programs to increase the average transaction value.

You can also provide additional value to your customers by offering complementary services that enhance their experience. For example, a fitness studio could go into nutrition consultations as add-on services. These value-added services can increase the overall transaction size while providing customers with a more comprehensive solution.

  • Look for injections of cash through investors

The fastest, though not the easiest, way to get cash for one’s operations is through investments. They can provide that needed jolt of capital and extend the “runway” so the business can take flight. But remember that cash injections are investments and have a corresponding future outlay. Make sure the numbers make sense in the long run.   

#2 Decrease cash outflows

For any business to survive, it must keep a firm handle on finances, especially the money it pours out from its coffers. Here are some of the ways an enterprise can do this:

  • Eliminate costs by streamlining processes

A lean company is a healthy company.

This is easier said than done, but a business can save loads by identifying bottlenecks, automating repetitive tasks, and training employees to work more effectively. These actions can reduce labour costs as well as improve productivity.

Unnecessary delays and rework should be eliminated. If there is a step in the operation that barely adds value to the end product, then the company should revisit it and perhaps scrap it entirely. For example, if the products are already quality-checked before packaging, performing a second additional inspection after packaging may be redundant. Eliminating this step can save time and labour costs.

Wastes, errors, waiting times, and inefficiencies are very costly. If a business can plug these leaks, it would go a long way in saving money. For example, if a manufacturing company can reduce waste or scrap, or if they’re able to reduce energy consumption, this will be reflected in the expense sheet. 

  • Eliminate costs by cutting losing sectors of the business

Not all products and services perform equally. There are highly profitable lines, and then there will inevitably be those that lag. A business can cut its losses by stopping the production of unprofitable, costly, or low-margin items.

Resource allocation is key.

  • Optimize the business by embracing technology

An enterprise can leverage technology to automate manual tasks, reduce errors, and enhance efficiency. It can use programs for inventory management, customer relationship management (CRM), project management, and accounting to streamline processes and improve productivity.

Although there will be capital outlay for equipment or software initially, these investments will more than pay for themselves in the long run. 

  • A more proactive collection process

A business that wants to get back to “black” must not leave anything on the table. Sometimes, a more efficient collection process is enough to get at its “receivables.”

A proactive collection process would include clearly detailed payment terms so customers are appropriately informed of things like due dates, accepted payment methods, and penalties for late payments.

There should also be some form of incentives for early payments. You can offer discounts or rewards for customers who pay their invoices early. This can encourage prompt payment and reduce the likelihood of overdue accounts.

Finally, there should be systematic follow-ups for those outstanding invoices. The company should not shy from sending friendly reminders, making phone calls, and keeping open the lines of communication with customers so that any payment issues are resolved promptly.

#3 Maximize money spent  

A business can’t help but spend. It can’t be avoided.

The job, therefore, is to make sure that the money released works the hardest to give the business the loudest bang for its buck.

  • Comprehensive budget and financial forecasting

Without a comprehensive budget, it’s very hard to move and make decisions.

By having a comprehensive and detailed budget plan, businesses can proactively identify areas where costs can be minimized or reallocated to generate higher returns. It can also gauge the size and kind of investments it can take, whether internally in the form of needed equipment or externally through other investment vehicles.

A budget will provide insights into how to more effectively manage cash flow.

  • Negotiate advantageous terms with suppliers

Explore opportunities for bulk purchasing, volume discounts, or extended payment terms. By building strong relationships with your suppliers and leveraging the purchasing power of the business, you can reach favourable agreements and reduce costs.

Also, seeking alternative suppliers or engaging in competitive bidding can drive competition and further lower expenses. By continuously evaluating their supplier’s performance, businesses can ensure they are receiving the best possible terms—optimizing every dollar spent.

  • Invest in stable instruments and monitor those investments

Effective financial management involves investing surplus funds in stable instruments that generate reliable returns. Businesses should conduct thorough research and seek professional advice to identify low-risk investment opportunities.

Also, monitoring investments is crucial to ensure they remain aligned with the organisation’s financial goals. This is to safeguard the investments and maximize returns on the money spent.

  • Continuous improvement

Businesses should foster a culture of cost-consciousness and encourage employees to contribute ideas for cost savings and process enhancements.

By regularly evaluating internal operations, streamlining processes, and implementing technological advancements, businesses can be continually optimized for improved financial outcomes.

And by applying the Japanese Philosophy of “Kaizen” (Continuous Improvement), organizations can ensure they extract maximum value from every dollar spent.

 

Those are the three surefire ways to go from red to black. An organization needs to increase its revenues, decrease its costs, and ensure that every dollar that leaves its coffers is optimally put to work.

 

Kinetic Innovative Staffing has an array of remote accounting professionals who can help your organization firm up its financial standing. We have a catalogue of Remote Rockstar Accountants you can hire. (Click on this link so we can send the full candidate list to your preferred email.)  

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