Cash Is King.
Anyone who has been in business for more than 5 minutes would know the importance of cash (and positive cash flow)!
Product businesses have it tougher than service businesses in this regard. We need to outlay A LOT of cash in order to have something to sell.
I recently surveyed my audience about what they struggle the most with when growing their business. The most common answer? Unsurprisingly….
Having the cash to buy the product to fund the growth.
Here are 8 ways to help you manage your cash flow when growing your business
Today I’m joined by Productpreneur Academy mentor and co-founder of the award-winning B-Box, Monique Filer.
In addition to being a hugely successful product business owner, Monique is also a chartered accountant!
Here are her expert tips for managing cash flow when growing your business.
1. Forecast your cash flow (aka a ‘budget’!)
Be prepared. Do a cash flow forecast to budget for when and where you need to spend your money.
You want to know how much you need to spend on each expense, such as stock, marketing, fright etc.
You also want to know when these bills are likely to fall due, so you can prepare for them.
Knowing this information also helps you to set your sales targets each month.
I created this Cash Flow Forecast spreadsheet you can download for free (or use your accounting package, like Xero).
2. Keep on top of debtors
Make sure you always have cash coming in! If you wholesale, be careful about offering long trading terms.
For eCommerce or wholesale businesses – offer easy payment options like PayPal, Credit Card and Afterpay (if you can afford their fees!).
If you have a customer on the phone, ask for payment and take down their credit card details over the phone. It may cost more to use credit card facilities, but it’s worth it to have the cash in your bank account faster!
3. Offer discounts for upfront payment
This one is for those of you who wholesale.
Many retailers (especially the bigger ones) expect trading terms. Many retailers then drag those out and pay later than their due date. This puts huge pressure on your cash flow!
Give them an incentive to pay up front by offering a small discount (2-5%).
Again, it’s worth it to get the money in your bank, rather than spend days or weeks chasing up payment.
4. Manage your stock levels
Nothing kills sales or cash flow like running out of stock!
But also, you don’t want to hold months and months’ worth of stock, as that is just money sitting on the shelf.
It’s a fine balance to keep on top of your stock levels. You need to watch how fast you’re selling through various lines, and then re-order at the most appropriate time to keep things in stock.
TIP: keep a spreadsheet that monitors sell-through rates and re-order / production / delivery timeframes.
5. Know your margins
Make sure you know how much profit you make when you sell each product. Ie the price you sell minus the cost you paid for the product.
You want to include any delivery costs you paid to have product shipped to you within the cost of goods.
Additionally – how much do you need to set aside from today’s sale to put towards your next order?
If your sales are growing – you will need to set aside more than just the replacement cost of each product you sell!
TIP: I recommend using a high interest savings account to save for orders and tax bills.
6. Build up a cash stash
The biggest difficulty when managing cash flow is… running out of cash!
Yet most businesses have peaks and troughs in sales revenue. This is a normal part of business.
For many product businesses, the high times will be in the lead up to Christmas, or during major new product launches, or big clearance sales.
Don’t spend those big influxes of revenue all at once! Set aside a big chunk in a high interest savings account to use during your lean months.
7. Focus on growth
Profit margins are important, but in the early stages you need to focus on growth.
That means, you NEED to have a customer acquisition and retention strategy.
If you’re selling online – how are you going to get new visitors to your website? How can you encourage repeat purchases?
If you’re selling wholesale – how do you win new clients? How can you get them to re-order?
Businesses who succeed at this know exactly who their ideal customer is and they focus on targeting them.
TIP: When starting out, use low cost marketing strategies such as Influencers and email marketing. Move onto paid traffic strategies when you know your website converts.
8. Get expert advice
The fastest way to grow is to ask for advice from someone who has done exactly what you want to do.
If you want to become a champion swimmer, you don’t go to dance classes!
If you’re ready to automate your sales growth, or looking to grow to multiple 6 or 7 figures?
Get there faster by having an experienced Productpreneur as your mentor!
Click the button below to find out about my Productpreneur Academy coaching program today.