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 what can a new business owners do beyond trying to borrow from family and friends and maxing out your credit cards. Here are some funding and cash flow ideas to help you get started. These practical tips will help you to generate cash flow while generating a customer list that will serve as a foundation for repeat business for years to come.
- Primary service or product: One of the easiest ways to boost cash flow and profit is to drive your customers to your bestselling (or primary) product or service that has 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 also do the same with pre-orders, with a percentage of the final sales price going to secure the order or a certain delivered-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 customers or loyal customers: This is a great way to literally 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 get 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 as an offer with something to act as an incentive for paying early like a small discount. 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 R25.00. While there may be some initial costs upfront for producing loyalty cards or customer tracking, the extra cash generated over time ends up going straight to the bottom line. Not only can you create a highly targeted list of better qualified customers, but this is a simple way to easily generate cash quickly just by asking for it.
- Don’t Discount: Rather offer additional incentives such as free home delivery to assist you in closing the sale. Focus the customer on the benefits and quality of your product, not the price. 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. The key is to test and measure what works and what doesn’t because no strategy will work perfectly for you every time. If you market correctly and test and measure everything you do, keeping your winning strategies and killing your losing ones, you will eventually find your cash flow “sweet spot”. That will lead to larger profits, increased cash flow and a healthier, more successful business over time.
By Harry Welby-Cooke – leading business and executive coach and SA’s Master Licensee for global franchise company ActionCOACH.