Tiger By The Tail Tool
Secret 69: Cash Flow Tips
What if I told you that every business had hidden treasure buried in its basement? I don’t mean a chest of gold and jewels, but almost every business I’ve come across has tied-up cash, additional sales, and missed opportunities just lying around, available and squandered.
Most business owners think that hidden cash is only in high inventory levels or outstanding accounts receivable. These are the obvious places your accountant would identify, but they are only a starting point for when you need to free up some cash. Of course, you can sell off some inventory or collect money owed to you, but those options are often limited. Some of the larger sources of cash are not apparent on the balance sheet.
Hidden sources of cash actually exist in missed sales opportunities. You can control cash both through sales and in how you manage client transactions. These tools can provide considerable control and cash resources.
Here are a few hidden sources of treasure buried in sales
- Longer-Term Contracts: Client agreements are often based on twelve-month contracts. I once had a salesman who joined our company and immediately started signing thirty-six and up to sixty-month contracts with clients. He actually had to handwrite in the terms because we didn’t have those options on our preprinted contracts. His innovation extended and locked in our cash flow for years!
- Initial Payment on Signing: Most businesses sign contracts with clients, start doing the work, bill thirty days later, then wait an additional thirty to sixty days to get paid. Businesses sometimes have to chase payments down, establish an A/R system, and allocate time for doing it. Alternatively, what if your clients made their first payment as “skin in the game” from the moment they sign an agreement to work together? Step one on a sale is the initial payment. When every sale begins with cash on day one, you can use sales to immediately create cash flow in the business. No more delays of thirty to sixty days waiting to start receiving cash.
- Payment Upfront: Businesses often make payment plans available to clients in order to finance a purchase or pay over time. Yet there are many opportunities to go in the opposite direction. You can offer clients a small discount in return for a portion of payment upfront for the first quarter, six months, or even an entire year. Some clients like the idea of prepaying for a discount on price. Offer it to clients as a “valueadded” option and you’ll be shocked when they say, “Okay, I’ll pay for six months in advance.”
- Secondary Sales: Many retailers and business-tobusiness companies have substantial accessory, secondary product, or add-on sales opportunities they aren’t using. These are often higher-margin items that don’t get the attention and sales they deserve. Mandate to your sales staff that when a customer buys your main product or service, the sale should also include a secondary product. We’ve all experienced such secondary sells of “purchase insurance” or extended warranties on everything from electronics to automobiles. These add-on sales opportunities have a massive margin pushed by everyone in the organization because it drives cash flow.
- Increase Deposits: Many companies are leaving deposit money on the table. Businesses typically contract for deposits of 10 or 20 percent to start a project. Why not increase that to 30 or 50 percent and give yourself a cash cushion on the project or product delivery (and eliminate the risk of negative cash flow). Many customers want to negotiate the deposit, so I start at 50 percent, knowing I’ll settle for a “special deal” at 30 percent.
- Planned Purchases: Get your sales team and clients thinking beyond just a single transaction. Ask your clients about their plans to purchase from your company over the next six months, the next year, and beyond. Customers often know what they might need over time, so offer them the opportunity to plan those purchases in advance. You can often accelerate the speed of a purchase beyond the pace the client would use on their own. Then get a deposit on the whole amount!
These are just of few of the hidden sources of cash you don’t already know you have!
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