Cash Flow Hacks (Part 3 of 3)
Keeping cash flowing is all about strategy. The first 3 ways to improve cash flow were reworking existing financing, converting excess inventory, and eliminating prepayments and/or deposits. In our last blog we went over the next 3: negotiate better credit terms, sell or lease back equipment, and restructure repayment terms.
Now, here are the 3 final ways you can improve your cash position:
- Credit works both ways: Previously, we discussed strategies for repacking your debt including purchases made on credit. Take the time to audit your current inventory and make note of the date of purchase. Stale inventory is unrealized cash.
Our experience: We returned all inventory of an auto parts client to their single supplier for credit against what they owed the supplier. Then we purchased all new inventories on a 2-year note. The result was no stale inventory, all high turn new inventory, reduced debt by $400,000, and better cash flow due to higher turn products.
- Create or follow company policy on down payments: While orders are the lifeblood of your business, if not managed properly they can strangle the company’s cash position. Buying supplies and paying labor, rent and other expenses while waiting the 30 or 60 days for your money, creates negative cash flow. In order to satisfy orders, you may need to purchase materials, subcontract services or even hire new or temporary employees. Construct a deposit policy that makes sense and then follow it. Perhaps you may require 50% down on orders over $1,000. If you don’t feel comfortable informing the customer, throw us under the bus. Let the customer know that your “finance department” has a policy that requires down payments. We would be happy to play that role for you.
- Secure financing through your suppliers: Analyze your sales cycle and monitor closely the effects on your cash needs. If posed suitably, the supplier may see the benefits of investing in your company in one of several ways; through credit, a loan, or even ownership. Tread lightly if you are considering offering equity (ownership) and be sure to consult with us or someone else skilled at negotiating this before doing so.
A cash crunch can feel like a black hole but remember – your creditors want to understand your situation. Defaulting makes it harder for them to recover funds, so communication is key. Be strategic, though, to protect yourself from misinterpretation. Once you raise cash, hold onto it and have a plan to avoid repeating history.
Need someone to talk to your creditors or suppliers for you? We have plenty of experience and know exactly what to say. Give us a call for a free consultation to get things moving in the right direction.
