6 Easy Ways To Find Cash In Your Business

Have you ever found that you never have the cash that you want right when you want it?

Have you ever been faced with the Buying opportunity of the Century and not have the cash to spend?

Has the bank said: I am sorry, we cannot lend you any more money?

These situations arise day after day and more and more business owners are finding it difficult to find the cash they need even though it is often right in front of them.

There are 6 easy ways to build your cash reserves for these special occasions. Ways that everyone talks about but who do not know how to go about it. So lets address each alternative:

1.Increase your profitability.
Most people believe that if you make more net profit you will have more cash available. While that can be correct it is not always correct. At this stage of our discussion, however, we will assume this belief to be correct.

Net profit is generally calculated in the following way:
Sales
Less Cost of Goods Sold
Gross Profit
Less Overhead expenses
Net Profit

Consequently, the way to increase net profit is to:

a] increase sales

b] reduce cost of goods sold; and

c] reduce overhead expenses.

When looking at increasing net profit most people look to their costs and look at cutting costs. A more effective way is to start by looking at sales. A resource that is available to every business and is unlimited in its potential for growth.

While most businesses look at sales as the amount they take through their cash registers it can also be looked at in the following way:

Sales = No of Customers X [times]

Amount Spent by Each Customer X [times]

No of occasions Each Customer Spends With You

If you are able to increase any of these amounts then it will increase your sales. Even small changes in each area will significantly increase your sales.

[for example, a 5% increase in each area will increase your total sales by approximately 16%, a 10% increase in each area will increase your total sales by over 32%].

Cost of Goods Sold can be reduced by:

a] more effective stock purchasing,

b] accessing discounts from your suppliers,

c] eliminating obsolete stock by disposing of it,

d] eliminating stock wastage in your business, etc..

Overhead expenditure can be reduced item by item by reviewing what is actually spent and assessing its effectiveness and appropriateness. Invariably, there are costs that can be reduced or eliminated.

So if you are able to increase profitability you have the ability to generate and put aside surplus cash for the times when you need these funds.

2.Decreasing your Debtor balances.
One of the reasons profitability may not provide your business with cash is it is locked up by you allowing your clients time to pay for items they have bought.

Let us assume your client has bought $500 worth of goods and you allow them 30 days to pay. That means you do not have the $500 in your bank account until the amount is paid. If you have 100 clients doing the same thing then for the next 30 days you could be owed $50,000. That is $50,000 that your clients have, that is not in your bank account [and your clients have the goods].

If we look at this scenario in a different way and assume sales are $50,000 each month and you are providing 30 days credit to everyone then you can get $1,644 extra cash for each day you can get all of your clients to pay earlier.

How do you release this cash:

a] invoice immediately the sale occurs.

b] offer shorter credit terms [even as short as 7 days]

c] follow-up your accounts vigorously [by phone]

d] setup formal credit arrangements for each client

e] only extend credit to creditworthy clients [do your research].

3.Decreasing your Inventories.
Another reason profitability may not provide your business with cash is it is locked up in stock that is waiting to be sold.

It is necessary for most businesses to carry stock to encourage their clients to buy from them. Clients are always looking for examples or something that they can take with them immediately.

Unfortunately, this leads to many businesses carrying:

a] too much stock,

b] slow moving stock,

c] large, bulky items,

d] obsolete stock, and

e] perishable stock.

If these items of stock were reduced, or even eliminated, you will be able to achieve a faster turnover of stock and release the amount of cash currently tied up in this asset.

You can improve your inventory position by:

a] selling obsolete stock [below cost if necessary as this stock is not selling anyway and it may be further out of date when you again come to review your stock];

b] reducing slow moving stock by having sales or selling to other retailers;

c] reducing the levels of perishable stock to reduce wastage;

d] finance the large bulky items on a floor plan [if possible]

e] using consignment arrangements, as much as possible.

f] using manufacturers brochures to promote the product and buy when your clients order. This approach also allows clients to order to their own needs.

g] implement a stock management system so you can keep track of your stock.

4.Increase your Creditor balances.
Many small business owners have the practice of paying all the money they owe when the invoice is received and not collecting the money owed to them by their clients. This is weakening the business cash position.
These business owners pay what they owe because they wish to maintain their credit rating.

It is acceptable to use the credit terms you are allowed. You can even use the credit terms in full so if you have a 30 day account, you do not have to pay immediately, you do not even have to pay in a fortnight, you can pay when the 30 day period of your credit expires.

Some people also copy what some of the major companies do. These companies do not pay their creditors until they are rung. I do not recommend this approach however there are a lot of companies who do not monitor the money they owe other people. These companies wait for phone calls requesting payment before they decide when to pay. That approach may give you another fortnight, month or even longer.

5.Restructure your Bank Financing Arrangements
Often bank loan facilities are not structured to meet the business needs. This situation arises because each loan facility is often requested at different times and is therefore treated as a separate transaction.

Many business owners often do not realize that their existing loan structures may lead to them paying more from their cash holdings than they need to pay. It is always worthwhile sitting down with your bank manager to see if your loans can be structured to provide more cash for your business.

You should note that there are occasions when providing more cash to your business is more important than keeping bank costs down. Often you can generate a better return by using the surplus cash in your business than it costs to operate many bank facilities.

So, talk to your bank manager and increase the amount of cash available to you.

6.Dispose of Unused / Obsolete Assets
Many businesses continue to retain old, unused or uneconomical equipment.

While there is a market for these goods, even if only for scrap, these items should be sold.

In most cases, all that these items are doing is taking up space that can be utilized by more productive business assets.

Where it is appropriate, sell the assets, and utilize the cash in the business, whether that be to buy efficient equipment, effective stock, or to promote your business.