1. GET AN
ACCOUNT ANALYSIS STATEMENT
How do you know
how much money (bankers refer to this as "balances") to leave in your
checking account to pay for bank's services? That's a
question that more business owners should be asking themselves.
(1) First, get
a price list which shows how much your bank charges for services like account
maintenance, checks deposited, checks paid, stop payments and wire transfers.
(2) Ask the
bank to send you a monthly "Account Analysis Statement." The
analysis statement contains the average balance levels for the month -- both
the ledger and the available balance -- as well as a listing of
services used,
their transaction volumes and cost. This
statement should be obtained in addition to the regular monthly bank statement.
(3) Look at the
account analysis to see whether you are overcompensating the bank. Then pull out
any excess funds and invest them in a high-yielding money market mutual fund,
for example. A word of
advice: Smaller banks may not know what you are talking about when you
ask for an account analysis. Larger
banks often offer such a statement, but you have to ask for it. And don't let
them charge you for this kind of statement since it is only an invoice.
2. INVENTORY IS
NOT CASH
Every item you
have sitting on your shelf should eventually be transformed into cash in your
bank account, and the sooner the better. As long as it's
inventory, it's basically dead weight. If it is not moving, you're not
having cash flow. Here are six
recommendations to minimize the cost of your inventory:
(1) Attempt to
forecast as accurately as you can the day, week and month what you expect to
sell.
(2) If you are
dealing in more than one item, determine which item accounts for 80% of your
sales. Then minimize ordering other items that are selling poorly or
infrequently.
(3) Determine
how fast you can get inventory, once you order it. Try to order as late
as you can. Some
firms can use "just-in-time" inventory which enables them to receive
their order the day they need it.
(4) Determine
your economic order quantity and don't order too much inventory just to save a
few pennies.
(5) Shop around
and make sure you are getting competitive prices.
(6) Develop a
policy for determining what is obsolete inventory, and how you can get rid of
it. The best way to
get rid of dead inventory is to sell it whatever you can get for it, even if
that's only 10 percent of what you paid for it. At least it will generate
cash flow.
3. DON'T FORGET
CONTINUITY SALES
Once of the
most exceptional ways of controlling and improving cash flow well into the
future is by employing something called continuity of sales or services. Continuity
sales are simply a contract to purchase products or services on an installment
basis for a fixed period of time. That may sound
complicated, but in practice, it actually is not. The best
example of a continuity sale is a magazine subscription. 12, 24, or 36 issues
delivered each month for X amount of dollars. The bigger the
subscription, they better deal you get. The publisher gets more money up front,
and the customer gets a better deal in the long run. Continuity can
apply to anything. Let's say you
own a dry cleaning business. How about an annual deal to clean 5 shirts
or blouses per week for set amount of money? Get people to
pay your for the entire week up front for a lot of fast cash flow. You'll trade
a discount for getting business, but you'll ensure a steady cash flow for
months to come. Continuity
works with just about any kind of product or service you are offering, from dry
cleaning to to your personal consulting service. You can
structure payments for continuity sales on almost any basis, but it's best by
far to go for complete payment up front. After all, the
discount is based on a customer's commitment, and they'll be a lot more
committed with their money on the line.
4. LICENSING
AGREEMENTS
After all is
said and done, if you were to list the assets of the company you have created,
you'd probably include your inventory, equipment, accounts receivable, equity,
and so on. But by this
time, especially if you have been reading carefully, you have something more --
something that is not necessarily a physical "thing" such as cash or
inventory. If you've been
a clever business person, you have come up with certain ads that have out
pulled your competitors. You have
developed policies and procedures that have kept your returns and refunds the
lowest of any around. Or you
may have come up with a money-making technique that is completely unique.
If so, you are potentially sitting on fast source of cash. You can license
the rights to use any of your specialized techniques or assets to other
non-competitive businesses. You can do it
for a flat fee, a percentage of profits, on a royalty basis, or any other way
that makes sense to you. You can also
conduct seminars to teach your techniques to other would-be work-at-home
entrepreneurs and charge whatever the market will bear. It's easy to
generate an extra $5,000 a month and much more on the lecture
circuit. While you are
getting paid to spread your knowledge, you will be drumming up more business. The knowledge
you have in your head right now could very well be worth a lot of
money. It's only a
matter of you looking within yourself and a your successes to see how you can
transform it all into real, hard cash. All the best.
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4 Tips To Manage Home Business Cash Flow Effectively (Part 2)
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