4 Ways to Decrease Small Business Overhead and Increase Cash

Posted by Stephanie Valentine on June 30, 2009 in Small Business Cash Flow |

What’s overhead? Not just the roof. For a small business overhead is usually the debt hanging over the small business owner’s head. Actually, overhead is the ongoing general cost of running your small business, and can include items like the cost of carrying inventory, office supplies, payments on equipment, and the cost of service providers like accountants and lawyers.

In the last few articles I’ve discussed ways small business owners can increase their cash flow into the business, by converting accounts receivables into cash. In this article, I outline four ways to decrease your company’s overhead. These simple solutions can help your business preserve cash, and stay solvent.

Decreasing Small Business Overhead

1. Barter with Others
Trading products or services with other businesses is one way to reduce your overhead. I often use this approach in with my small businesses. I may trade my writing services or web-design work for graphic design services or legal advice from another company. Bartering works well so long as both parties have goods or services of equal value to trade. If you’re not sure how to go about bartering, check in with your local Chamber of Commerce, which may already have a barter network in place.

2. Reduce Inventory
The cost of carrying inventory makes up a large percentage of the overhead for many small businesses. While it’s essential to provide your clients with what they want, there are ways to do that while trimming your inventory. First, review your inventory to identify which items are hot-sellers and which have been sitting on the shelf gathering dust. Next, locate the items that generate the best profit for your business. Finally, trim the low-profit and slow-selling items from your inventory. You can even turn this action into a benefit that can be conveyed to your customers. Turn an inventory reduction into a “specialization.” For instance, one gift store business reduced inventory by carrying only products made by indigenous people around the world. The resulting reduction in overhead has allowed the business to expand their marketing efforts, and the increase in cash flow is the overall result.

3. Renegotiate the Cost of Regular Business Services
Most small business owners are too busy to price-shop, but you’ll find that you can negotiate lower costs for regular services your business buys by doing just a little price shopping. Call around and get three to for quotes for regular business services, including insurance, long distance phone service, equipment maintenance, and delivery services. Once you find the best rate, go back to your current supplier and suggest they meet the price. If they refuse to do so, consider setting up an account with another, less expensive service.

4. Join a Buying Co-op
Buying in bulk is always less expensive. Many small business owners are now forming buying co-ops to purchase office supplies and equipment in bulk. For instance, many office supply stores offer discounts for buying paper, ink, or toner in bulk. If you don’t already have a buying co-op in your area, call up a few of your fellow small business owners and create one from scratch. You can also call your local Chamber of Commerce to see if a buying co-op exists in your area.

Reducing small business overhead is really a matter of paying attention to the details. Often, the savings you get from renegotiating your insurance policy or buying in bulk may not seem like much, but if you add up all the small savings you’ll find that your average annual savings can be significant. These days, when cash is vital to business survival, pinching pennies where you can is often the difference between a thriving enterprise and a bankrupt business.

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3 More Ways to Beat the Small Business Cash Flow Crunch

Posted by Stephanie Valentine on June 25, 2009 in Small Business Cash Flow |

In my last blog post I talked about three simple ways to improve your small business’ cash flow, including prompt billing, avoiding slow and no-pay customers, and asking for your cash sooner.

Now I have three more ways you can increase the cash flow. More specifically, these methods help you turn accounts receivables into cold hard cash that your small business can use today.

3 More Ways to Increase Cash Flow Into Your Small Business

Some of these cash flow strategies may take a little time to set up, but you’ll find that the resulting positive cash flow will be worth the effort. By implementing these strategies, you’ll be joining the thousands are small business owners who are looking at resourceful ways to get paid sooner.

1. Make It Easy for Your Clients to Pay
It’s only logical that your clients will pay you sooner if you make it easy for them. Here’s how. First, when you establish a relationship with a client, state your payment terms and options up front. Let your clients know whether you accept cash, checks, credit cards, and online payments.

Second, start accepting credit cards. As your clients begin experiencing their own cash flow crunches, they will want to manage their cash flow by using credit cards to pay for services. By accepting credit cards, you will increase your chances of being paid in a timely fashion. These days, small businesses ranging from plumbers to accountants are accepting credit cards–and seeing an upsurge of cash flow as a result. Although you will have to pay 1-3% to a credit card processor, the increase in your small business cash flow make the fees worth paying. Remember that 90% of business failures are due to cash flow.

Third, consider accepting online payments through services such as PayPal, Verisign, Quickbooks, or Authorize.net. Your clients are every bit as busy as you, and by allowing them to pay online, you allow them to handle payment at a convenient time, which may not be during regular business hours.

2. Don’t Be Afraid to Ask for Your Money
Studies show that friendly reminders, along the lines of, “Did you get my bill and when can I expect payment?” can significantly increase payment rates. Before you start asking for payment, be sure that you have made your payment terms clear at the outset of your relationships with your clients. Next, use software to track the age of various accounts receivables so that you can easily list late-paying clients, and start calling with friendly reminders. Finally, if necessary, consider using an outside collection agency for extremely delinquent accounts. Use this option with caution, as you may negatively impact your business relationship with your late-paying clients, or others who know those clients.

3. Balance Your Client Base for Steady Cash Flow
Depending on how you typically bill for products or services in your business, you can create a steadier cash flow by using different payment structures for different clients. For instance, if your business is seasonal or experiences fluctuations in cash flow, consider switching some clients over to a retainer-basis so that the monthly cash flow is steadier. With a retainer, you offer your client a certain amount of products or services for a fixed fee per month. To encourage clients to switch over to this method, consider throwing some bonus products or services into the mix or offering a slight discount. While this might cut into your profit margin a bit, you will get the benefit of steadier cash flow every month.

It can take some time to implement these strategies. For instance, if you decide to accept credit card payments, you will need to set your business up with a merchant services company. Similarly, if you choose to move some of your clients to a retainer basis, you’ll need to spend some quality time with those clients to persuade them that a retainer is a win-win solution. However, you’ll find that if you invest this time and effort up front, your bank balance will reflect a much healthier cash flow, which is crucial in today’s tough economic times.

Have you got some resourceful methods for increasing the cash flow into your small business? Care to share?

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Test Marketing: Fast, Cheap and Easy

Posted by Stephanie Valentine on May 25, 2009 in Small Business Marketing |

Test Marketing: Try Stuff On for Size

If you’re a sole proprietor or small business owner, marketing can seem like a headache that just won’t go away. You might have lots of good ideas, but you’re not sure which ones to pursue. And, if you’re like most small business owners, you only have a limited budget to invest in marketing, so which marketing options should you pursue?

Test Marketing an Idea
A really quick and dirty way to check out your ideas is to use test marketing. When you test market an idea, you implement the idea on a very small scale to a limited portion of your customers or “audience.” For instance, if you’re in the dry cleaning business and you want to try out a volume discount idea, you might test the idea by offering it selectively to people who regularly bring orders of $50 or more for dry cleaning. The people in this test market obviously do high volume and are probably interested in saving money.

Set Time Limits
Set a time limit for your experiment and keep track of the results carefully. Look back through your records and see how many orders these people brought in, how often they came in and how large the orders were. Then, see what changes, if any, your promotional discount created. See if you get an overall increase in revenue and profit. If there are no changes, talk to those high volume people and find out what’s on their mind. It may be that they already bring all of their dry cleaning to you and have no more volume.

Next Steps
If that’s the case, then try your promotion on the next tier of customers – the people who may bring you only pants and skirts, but who take their shirts to the 99 cent place around the corner. Offer a volume discount to this group of customers and see if they will increase their volume to get the discount. Talk to them and find out what’s important to them as you hand them a coupon for the next order.

If you run this experiment for a few months, you’ll begin to really see the effect (positive or negative) on your bottom line. At the same time, the only money you’ll spend on this effort is printing up some coupons to hand to customers. If this really works, then you might consider increasing your investment in this idea and advertising it through newspapers or coupon services.

Cheap Test Marketing Allows for Mistakes
Test marketing is a great way to test out all of your ideas on the cheap and limiting any possible negative effects. Sam Walton, founder of Wal-Mart and Sam’s Club, once said that if you keep your expenses down you can afford to make a lot of mistakes and still recover. That’s the very essence of test marketing! Good luck and have fun!

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