Keeping on top of cashflow is the lifeblood of a business. Whether big or small, managing the flow of cash through your business and getting on top of unnecessary bottlenecks can reap real dividends later.
The current economic climate presents challenges to all businesses as costs fluctuate, inflation rises and consumer spending starts to stagnate. To tackle economic challenges, it is important to establish ways that cashflow can be protected to allow you to make long-term decisions when the power to estimate budgetary pressures diminishes. Just what steps can you take to improve cashflow through your business?
It’s never something a business wants to do and certainly not a decision to take lightly, but as rising costs continue to hit profits hard, some costs will eventually need to be passed on to the customer. This is a sensitive issue but one that is not unheard of in the current economy. Customers will be more understanding of solid and well thought through justifications for pricing changes given the current cost-of-living situation.
However, the success of this type of action is often down to the way in which it is communicated. Give customers plenty warning to plan for any cost increases and ensure you have given reasoned explanations for why you must increase costs. This can make all the difference when it comes to ensuring customer loyalty.
Cost creep can be a lurking problem thanks to the changing way in which we pay for services. So many business costs are now payable through monthly subscription fees and the relatively low cost can lull you into a false sense of security when it comes to their impact on the bottom line.
Software subscriptions are one of the biggest culprits for cost creep. Small payments for online storage or cloud services as well as usage or license fees can really add up when multiplied across multiple business users. What many businesses don’t realise is that we’re often not getting the most out of our software subscriptions and are incurring unnecessary costs for different software packages that can do the same thing. A good example is paying for virtual meeting services when there are many free versions available. Or paying for business software and separate online storage without realising that storage is available via the original business software package.
Try and get a handle on what is necessary and what is duplicated with a firmer understanding of what you get for your money with each software subscription you take out.
Evaluate Overheads Regularly
Key business overheads such as energy, materials and staffing have really been on the increase over the past year. This can have a major effect on cashflow and ensuring you are on top of your overheads can help reduce unnecessary over expenditure. A simple audit of business costs is a straightforward way to look at how fixed costs may have increased and how to mitigate against this in other areas of the business.
Energy is one area where businesses are feeling price rises most acutely. Taking note of where energy use can be reduced should be a key part of any businesses sustainability protocols but can also be applied to overhead savings. Switching off lighting, managing heating or air conditioning costs, turning off machinery and devices and not leaving items on standby mode can all have a significant impact on overheads.
Working with a specialist energy consultancy to identify ways in which your business can help to reduce energy costs offers long-term benefits that could have a significant impact of profits.
Renegotiate Payment Terms
Don’t be afraid to look at how payment terms could be changed to maximise cashflow. If your suppliers are on short payment terms but your customers are taking longer to pay, this can present bottlenecks to your cashflow that can affect your ability to run a business. Take this opportunity to level up on payment terms and keep customers and suppliers on a level playing field.