Beyond profit in a business, cash flow is king. For startups, establishing cash flow as quickly as possible is vital to keeping your operations going through your critical first year and beyond.
The key to maximizing cash flow in your business is to understand the things you can actually work on and measure, to create a clear target number or objective.
Those factors (part of the " 5 Ways " formula we've discussed before) are your:
- Total number of leads
- Conversion rate
- Total number of transactions
- Average value sale
- Profit margins
What's one of the first and easiest ways to immediately boost cash flow and profit? Simply drive your customers to your bestselling (or primary) product or service with the highest profit margin.
Beyond that, there are some other very simple ways to jumpstart cash flow from day one.
Here are five tips to enable you to make cash upfront while generating a customer list that will serve as a foundation for repeat business for years to come.
- Deposits or pre-paid contracts: If you are in a service business, deposits or pre-paid agreements are a great way to generate cash flow upfront. You need to deliver on the back end, or else you won't be in business long.
If you have a product-based business, you could also do the same with pre-orders, with a percentage of the final sales price going to secure the order or a certain delivered-by date.
The key here is to get creative, as there are endless possibilities in making this model work for you.
- Periodic "closed-door sales" for new customers or loyal customers: This is a great way to literally create a captive audience for your product--or service, if you set it up as a workshop, class or demonstration--in an environment you can control with a sales and pricing process you can direct.
For this event, "sale" doesn't need to mean "discount." Offering an exclusive, limited-time purchasing period for new customers (and in the future for loyal customers) is an incentive for them to get the latest, greatest, best or most innovative products--or those with the greatest value--before everyone else.
- Shorter payment windows: Depending on your company, you could combine upfront payments with shorter terms, especially if you are in a service category. It's best to position the shorter terms as an offer, with something to act as an incentive for paying early.
You could offer a small discount for early payment, but a better option is a small gift or some other kind of added-value offer. You could also position this as both a thank you and an incentive to keep customers consistent with their shortened terms.
- Frequent buyers' program--for a price: We've all been part of these programs, but some very effective programs can be created simply by charging $5 or $10 to be part of the club. While there may be some initial costs upfront on producing loyalty cards or customer tracking, the extra cash generated over time ends up going straight to the bottom line. Not only can you create a highly targeted list of better-qualified customers, but this is a simple way to easily generate cash quickly just by asking for it.
- Test new, unique, price-conscious or bargain products at local markets: One way to generate cash flow while testing the market for any a unique, out-of-the ordinary or bargain-based product is to set up a location at a local market or swap meet. This is an inexpensive way to test the waters on a new product--or even a service such as massage therapy and the like, if local regulations allow it--and get paid for it. Depending on your product or service (and the amount of foot traffic a local market generates), this tactic may even turn into a decent side business, as it's a great way to get income going on a low initial investment.
Once you get your company up and running, you can expand on these strategies and also look to increase your value adds at different buying, sales or customer contact points along the way. The key is to test and measure what works and what doesn't, because no strategy will work perfectly for you every time.
If you market correctly and test and measure everything you do--keeping your winners and killing your losers--you will eventually find your cash flow "sweet spot." That will lead to larger profits, increased cash flow and a healthier, more successful business over time.