5 Tips for Outsmarting a Cash-Flow Crisis

— November 28, 2018

Entrepreneurs are natural dreamers. They see a vision and they’re crazy enough to try and build it for themselves. But there’s one thing that can hamstring any dream: cash-flow problems.

Less than three-percent of small businesses started in 2011 are still operational. Your ability to manage cash-flow effectively will determine your ability to grow, or even survive the ups and downs of entrepreneurship.

I want you to be armed with every advantage as you set your future in motion. Even if you’re already up and running, as Mr. Wonderful says on Shark Tank, “Poo poo happens.” So, let’s dive into some areas where you can set yourself up for success in the year ahead.

1. Monitor Expenses to Avoid Death by a Thousand Credit Card Swipes

One of the easiest things to do is audit your past expenses. A penny saved is a penny earned. And chances are, your needs will dramatically change from month to month. Don’t let the calendar flip without reviewing your monthly expense report.

Here are some of the things I pay close attention to:

  • Discretionary expenses: Everything from coffee runs to the random office supply purchases add-up.
  • Software subscriptions: 9 times out of 10 you can save money by paying annually for things like antivirus, Microsoft Office and Spotify.
  • Insurance premiums: It takes five minutes to get a quote for most insurance products. Shop around at least once every few months.
  • Utilities: A spike in energy costs could signal inefficiencies in your working environment.

2. Invoice More Efficiently

Want to know the quickest way to go out of business? Forget to invoice your clients for all of the hard work you’re putting in. Use software like Toggl to automatically track time as your team works through a project. That way, when the work is done, you can automatically compile timecards for each team member that generated billable time.

The timing of your invoice is also critical. Find out the preferred payment cycles of your clients. Do they prefer to process invoices at a set time each month? What is the cut-off to ensure your invoice makes this month’s pay-cycle?

Avoid sending an invoice to multiple people within an organization. Find out who is responsible for payments and direct it to them. When multiple people have responsibility for paying an invoice, it’s likely that they’ll assume one of the other people took care of it. This means missed or delayed payments for your company.

5 Tips for Outsmarting a Cash-Flow Crisis

3. Find Hobbies that Enhance Your Business / Net Worth

The way that you spend your free time–however little entrepreneurs may have – can either enhance or deplete your bottom-line. It’s fun to daydream about how you’ll spend your millions one day. But if you spend a bunch of money now on lifestyle expenses, you could be mortgaging your financial future.

One of my mentors spends his time collecting items of value – historical, rare or intriguing. He enjoys learning about the history surrounding rare, sought-after items. And he meets a ton of fellow collectors – some of whom become friends and/or clients. Networking in hobbies that attract high net-worth individuals can be an excellent strategy for growing the potential of your brand.

And the items themselves can return a profit if you decide to sell them in the future.

4. Offer a Pre-Payment or Volume Discount

When finances are tight, it can be difficult to generate additional work. New client relationships take a while to grow. Advertising campaigns can be expensive and take time to generate new clients – especially considering that the average consumer consumes an average of 360 ads per day. Unfortunately, less than half of those ads make a notable impression.

So, what’s the shortest path to accessing capital in a pinch? Leverage your existing customer base. Offer your best clients a pre-payment discount. It’s important to carefully position this type of offer. I’ve used this strategy before and I was successful because I was able to convey that this was a limited-time offer to our best clients.

You’ll need to have a strong relationship with the client, because they’re paying you before work is completed or even needed by them. But, if they trust you, they’ll see the value of paying in advance for a discount on work they would have ordered in the future anyways.

And, of course, you can always offer a discount if they order a larger volume from you in a single order.

5. Unveil a New Product Early for a Crowdfunding Campaign

I’ve had very little success with crowd-funding campaigns. But, I know other entrepreneurs that have generated hundreds of thousands, or even millions of dollars to fund their operations. Usually a crowdfunding campaign is reserved for startups, but existing companies can get in on the action by unveiling a product they have in development.

Crowdfunding platforms like Indiegogo are actively looking to widen their potential user-base by inviting established brands to launch new products via crowdfunding campaigns. The marketing benefits alone can make the process worthwhile.

And, if you’re having difficulty funding new product development, this is a great way to access your future customer’s cash during the dev / production stage.

Remember, cash-flow has the potential to ruin your company. Great entrepreneurs find ways to minimize costs, expedite client payments and fuel their growth without running out of runway.

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Author: James Lang

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