Turn your company into a money machine
By Harry Welby-Cooke, ActionCOACH Southern Africa
Novice entrepreneurs quickly learn the depth of truth behind the old saying: “It takes money to make money”. Beyond profit, cash flow is king in business. Launching a business can be next to impossible without cash to work with. It is therefore vital for start-up businesses to establish cash flow as quickly as possible during their first year of operation. Since stiff lending standards continue to cripple many start-ups, we consider some of the alternatives available to new business owners to address their cash flow and funding requirements (other than borrowing from family and friends and maxing out their credit cards). Here are some practical ideas to help your cash flow while building a customer base that will serve as the foundation for generating repeat business for years to come.
PRIMARY SERVICE OR PRODUCT:
One of the easiest ways to boost cash flow and profit is to steer customers to your bestselling (or primary) product or service with the highest profit margin.
DEPOSITS OR PRE-PAID CONTRACTS:
If you are in a service business, deposits are a great way to generate cash flow upfront. However, you need to deliver on the back end, or else you won't be in business for very long. If you have a product-based business, you could do the same with pre-orders, with a percentage of the final sales price going to secure the order or a certain deliver-by date. The key here is to get creative, as there are endless possibilities in making this model work for you.
PERIODIC ‘CLOSED-DOOR SALES’ FOR NEW OR LOYAL CUSTOMERS:
This is a great way to create a captive audience for your product or service. Set it up as a workshop, class or demonstration in an environment you can control and with a sales and pricing process you can direct. For this event, ‘sale’ doesn't need to mean ‘discount’. Offering an exclusive, limited-time purchasing period for new customers (and in the future for loyal customers) is an incentive for them to acquire the latest, greatest, best or most innovative products, or those with the greatest value, before everyone else.
SHORTER PAYMENT WINDOWS:
Depending on your company, you could combine upfront payments with shorter terms, especially if you are in a service category. It's best to position the shorter terms in such a way that customers are incentivised to pay early, perhaps by offering a small discount, but a better option is a small gift or some other kind of added-value offer. You could also position this as both a thank you and an incentive to keep customers consistent with shortened terms.
LOYALTY PROGRAMMES PRICE:
Establish a loyalty programme and add enough value so you can charge a nominal joining fee of around R25. While there may be some upfront costs for producing loyalty cards or for customer tracking, the extra cash generated over time goes straight to the bottom line. The loyalty programme is a simple way to easily generate cash quickly just by asking for it and it also enables you to create a highly targeted list of better qualified customers.
Focus the customer on the benefits and quality of your product, not the price and rather offer incentives such as free home delivery to assist you in closing the sale. Don’t be afraid to lose the sale. That way you will attract only A and B grade customers and clients.
You can expand on these strategies and also look to increase your value adds at different buying, sales or customer contact points along the way. Remember that no strategy will work perfectly every time; the key is to test and measure what works and what doesn't. If you market correctly and test and measure everything you do, keeping your winning strategies and discarding the losing ones, you will eventually find your cash flow ‘sweet spot’. Over time this will lead to larger profits, increased cash flow and and a healthier, more successful business.