If you are a business owner, an effective cash flow management plays an important role in your business’ survival. If your profit is increasing each year, GOOD NEWS, things are looking bright for you. But bear in mind that this doesn’t mean that you won’t face any cash flow problems in the future. You might still earn but have a shortage of cash. This may happen when your payables (ie. Debts) are due before your receivables. And in order to survive during the MCO (Movement Control Order), here are some suggestions on how you can increase your cash flow gradually.
And in order to survive during the MCO (Movement Control Order), here are some suggestions on how to increase cash flow gradually.
(Video for Chinese version is at the bottom of the page)
1. Increase Basket Size
It is undeniable that the volume of customer purchases has been decreasing during the MCO. However, your returning costumers are those who are still willing to purchase your product. What this means for you is that you can bundle up similar products into a BUNDLE DEAL. For instance, if a customer always purchases a book for RM50, you can now entice him to also make a pencil purchase of RM5 (normal price at RM10). This discount/deal although may hurt your margins but can help to increase your cash flow at the moment.
2. Increase Average Sales Cycle
The process that a product is sold to a customer is known as a sales cycle. In a nutshell, the shorter the cycle, the more sales you make in lesser time. To increase your average sales cycle, you can run additional marketing activities to generate more leads. These activities could be creating advertisements, giving first-time promotions, or partnering with related businesses. Beyond that, you can think of shortening the sales pipeline. For example, making direct sales calls instead of waiting for email replies.
3. Reduce Cost
By cooperating with businesses in a similar industry as yours, you may be able to purchase the same supplies together at a cheaper price. Say, you always purchase each book from your supplier for RM2. But because now you have decided to also purchase books on behalf of your co-operator, you can negotiate / bargain for a lower price of RM1.5 per book. By doing so, you will be able to decrease your cost, in other words, increase your margins and cash flow!
4. Long Term Contract with Discounted Price
As for the service industry, many find it hard to sustain their business as the MCO enforces social distancing. Many are also facing the dilemma of laying off workers to preserve their cash55 with the concern of not enough manpower after the MCO. Therefore, what you can do is to secure a long-term contract with a discounted price. Think of facial services, they often get you to sign with them a 10- or 20-times facial package, often cheaper than individual sessions. Use this method to secure your cash inflows and also your customers who will return back to you after the MCO. Do keep in mind that partial deposits here are a must.
5. “Full Refund” Tagline
Customers always have the anxiety of a bad product purchase decision. Therefore, by having a tagline of “FULL REFUND”, it may relieve their anxiety and give them the confidence to purchase, knowing that if the product/service does not perform on par, they can request a full refund. But keep in mind that there is a risk of customers abusing this method. Therefore, you need to be careful to filter out your potential customers to whom you want to give this offer to.
6. Value Added Service
If giving a discounted price is not the solution you are seeking, then maybe you can try to deliver more value along with the product/service. For instance, if you are a web designer, you may offer to design their website for them plus, provide them a web domain and hosting for free! With this, your costumers will think that your service value is worth that price and will lead to increased sales.
7. Minimum Purchase Commitment / Early Payment Discount
There are plenty of people saying that we should negotiate with our suppliers and creditors to extend our payment term. However, if everyone thinks like this, your own customers will also request the same thing from you. The workaround here is to:
First, identify potential customers, these are long-term customers or good payment masters, you may accept their request with one requirement: minimum purchase commitment. Let say if the customer used to purchase 100k of products from you, now they have to buy 150k in order for them to extend their payment term.
Secondly, if you have customers whom you don’t really trust to make payments, you could offer them an early payment discount ie. giving a 5-10% discount if they are able to pay you the first half of the payment, with installments on the second half.
8. Study Your Cash Flow History
Last but not least, you should analyze your cash flow in the previous months/years. If you notice that there is a positive net cash flow in a particular month, check to see what event or campaign was done during that time and execute a similar tactic now, it may help to increase your cash flow once again.
All of the needed data and graphs to analyze your historical cash flow can be easily obtained with GOBI! And if you are SQL user, you can access to GOBI for free.
Here’s a Chinese version of what has been talked about above.