Make no mistake, if you don’t have healthy cash flow, your business will never prosper ActionCOACH SA's Harry Welby-Cooke explains.
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There are many reasons why people go into business, from wanting to change the world, to solving a burning need, to simply being unable to work for someone else. The single unifying force of any business however is profit. If a business isn’t making a profit, it will soon cease to exist.
“Beyond profit, cash flow is king in business,” says Harry Welby-Cooke, a business coach and the co-master licensee of Action COACH in South Africa. According to Welby-Cooke, whether you’re a start-up or an established business, cash flow is vital to the overall health of your business – and turning a true profit is impossible without this key ingredient in place.
Here are six practical tips from Welby-Cooke that will help you to generate cash flow while also generating a customer list that will serve as a foundation for repeat business for years to come.
- Know what you primary service or product is. According to Welby-Cooke, one of the easiest ways to boost cash flow and profit is to drive your customers to your bestselling (or primary) product or service. This will generally have the highest profit margin.
- Make use of deposits or pre-paid contracts. If you’re in a service business, deposits are a great way to generate cash flow upfront. But, bear in mind that you need to deliver on the back end, or 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. Get creative - there are endless possibilities in making this model work for you.
- Introduce shorter payment windows. Depending on your company, you could combine upfront payments with shorter terms, especially if you’re 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 for example. Alternatively, you can offer a small gift or something else with added-value that you know your clients will appreciate. You could also position this as both a thank you and an incentive to keep customers consistent with shortened terms.
- Host 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 class, workshop or demonstration in an environment you can control and with a sales and pricing process you can direct. For the purposes of the 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 before everyone else.
- Launch a loyalty programme (at a price). By establishing a loyalty programme and adding enough value to your clients, you can charge a nominal joining fee of around R25. While there may be some initial upfront costs 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 quickly and easily generate cash just by asking for it.
- Don’t discount. Where possible, rather offer additional incentives to add value, without dropping your price point. For example, include a free home delivery service to assist you in closing the sale. Focus the customer on the benefits and quality of your product, not the price. And don’t be afraid to lose the sale. That way you will attract only A and B grade customers and clients.
According to Welby-Cooke you can expand on these strategies throughout your business lifecycle.
“Look to increase your value adds at different buying, sales or customer contact points along the way,” he advises. “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’ll eventually find your cash flow ‘sweet spot’. That will lead to larger profits, increased cash flow and a healthier, more successful business over time.”