In our last few blogs, we uncovered just how important cash flow is to your business owner clients. Cash flow is the life blood of any business and should be managed properly to ensure an effective exit strategy when your business owner clients are finally ready to part with their businesses. Some business owners may be farther away from retirement than they think, especially if they have unhealthy cash flow. Below are some strategies you can suggest to your clients to help them boost their cash flow.
1. Invest in a Reliable Accounting Software
In this day and age, we know all too well how reliant we are on software. Managing one’s cash flow is no exception. Advising your clients to invest in a seamless online tool that gives them the ability to accurately track cash flow, can greatly impact their future plans and financial decisions.
2. Put Cash to Work
If there is excess cash in the business accounts, you should suggest to your client to invest in a funds or financial products that might generate some level of return on investment. All clients may not have the same amount of extra cash on hand, but by allowing any extra cash to grow over several years in a savings account will earn your client that extra boost they might need to retire on their timeline. Be sure to encourage them to invest in products that offer access to the funds within a time frame that works for the business.
3. Obviously…. Spend Less Money
Instead of business owners replacing expensive equipment on a preset schedule that may have been born in better days, advise them to take the time to figure out if they can fix or replace old or broken equipment with a less expensive model. No need to cut corners if it doesn’t make sense for the business, but business assets are a great first place to analyze where one might be able to save some money. It can be easy to find used equipment to decrease one’s cash expenditures. There are also typically a lot of free software tools that work just as well as the expensive licensed software. Get creative with your client’s offerings, customers, and partners. There may be opportunities for trading goods and services with business partners that improve operations or enhance both brands for little to no cost.
4. Inventory Check
On the same subject as the last tip, there may be an opportunity to save money by taking a good hard look at inventory. Much of a company’s cash can be tied up in tangible products. By keeping the inventory closet full, business owners are losing the potential to use the cash flow to invest in the business. By improving inventory control, your clients will be able to determine what supplies they need to be purchased to meet demand. Additionally, a high inventory turnover indicates strong sales and satisfied customers, which improves overall business value.
5. Manage the Customer Base
Getting customers to pay on time and consistently can be more challenging than expected, especially during an economic downturn. Holding customers to their payment terms will allow for a much more consistent, efficient cash flow. If your clients allow occasional late payments beyond the grace period, they will only add more stress to the business and suggest that late payments are acceptable. Recommend to your owner clients to send payment reminders as often as necessary to ensure each customer knows exactly how much they owe and by what date each month. Make the payment process as simple as possible for customers. Reminder schedules and payment options can easily be automated through your client’s new accounting system (discussed above).
6. Extend Payment Dates
When your clients pay their bills on the very last day they are due, they are allowing cash to be used for other things that might be more beneficial to the business. They can typically set up automatic payments to ensure they remain in good standing but can utilize that cash flow more effectively until their payments are due.
7. Don’t Put All the Eggs in One Basket
Suggest to your clients to make their automatic payments or pay their bills throughout the month. Obviously, many business models project to earn their total monthly revenue gradually over the month. By ensuring the bills are getting paid throughout the month, your clients shouldn’t ever have to worry about over drafting their account. This is obvious advice for anyone but can be a helpful reminder. We all have had that surprise bill hit a little too close to our rent check getting cashed. By helping your clients create a monthly plan of when their bill payments are due, you can alleviate some financial stress and help plan for new investment strategies in the future when they have liquid funds.
8. Strategize Payroll
Help your owner clients set up their payroll account to transfer funds right before paying salaries so that they can have their liquid cash flow available to them for as long as possible. Also, if you advise your clients to pay their employees primarily through direct deposit, they can save time and money sending out checks each month. Give employees some type of incentive for signing up for direct deposit if the entire staff isn’t already on board. Another helpful tip would be to pay employees bimonthly as opposed to biweekly because your client can avoid having to run payroll three times in a single month, which can happen sometimes in a biweekly schedule.
9. Always Have a Plan B
As business owners and advisors, we are all very accustomed to the having a fallback plan in place in our professional as well as in our personal lives. The adventure begins when the plan fails. Most business owners didn’t pick the adventurous lifestyle of owning their own business just to coast through with no problems. Plans often fall through when you own your own business. Experienced business owners expect the constant ups and downs, and crazy curve balls life throws their way. But to stay ahead of the curve, they must always plan for the worst and hope for the best. At some point, we all run into emergencies and could really rely on a few extra bills in our back pocket. Be sure to remind your clients to allocate some emergency funds just in case the unexpected happens.
10. Take Advantage of the Credit Card Perks
Businesses spend money every day. Why not take advantage of those points or small perks most credit card companies offer and use them to boost business credit or pay for routine expenses? Credit cards can also further delay your client’s payment schedule for some expenses. Paying on the last possible due date (as discussed above) with a credit card, then paying the credit card bill on its last possible due date, can extend the number of days that the business can use and manage its cash. Of course, be careful with this tip. As we all know, credit card debt can be an easy trap to fall into. Although the perks credit card companies offer always sound appealing, the reason they are in business is to entice people with the perks but lock them in with the high interest rates. Make sure to encourage your clients to do their research and choose the card that makes the most sense to them and their business.
These simple tips won’t solve your clients’ cash flow problems overnight, but small steps can lead to great strides. By advising your clients to get into healthy cash flow management habits, you can greatly help them down the road with enhancing the business valuations and keeping them on track for a successful exit.