Cash flow is the lifeblood of your business, and managing it well will ensure your business’ vital signs are stable. Here are some ways that you can pump life back into your business and take care of your cash flow.
Shrink your tail spend
Non-core product expenditure, often referred to as tail spend, covers those things you purchase that don’t directly drive your business such as IT and courier costs. Since each of these suppliers and orders are generally quite small, most business owners don’t focus on these costs, preferring to find savings and discounts with their core suppliers, where their larger orders are placed.
However, tail spend could actually add up to 25-30% of your business’s total costs. This means that shrinking your tail spend is a great opportunity to get some significant savings in an area you may not have previously focused on.
You can increase your buying power by teaming up with other SMEs in a buying group. Some areas these companies can save you money immediately include; banking services, office products, fuel, HR, training products, IT, courier services, waste removal and other common-use goods and services.
Some industry based buying groups will have costs associated with membership, however there are some generic SME buying groups that are free to join and provide offers with non-ongoing fees.
Where to start:
- Find like-minded SME' s who purchase your industry-specific product and talk to them about having a mini buying group.
- You could also join an existing buying group that will do the legwork and negotiating for you.
- There are a number of buying groups available that are either industry specific or provide deals on common use goods. They differ in the deals available to members, and whether they charge joining or ongoing membership fees, so make sure you do your research before signing up.
Get real with your suppliers
Ask for supplier rebates. Many of your suppliers will have the same cash flow issues as you, and a growing number will offer you a discount for early settlement or even an on-time payment. While policies vary from supplier to supplier, it is not uncommon to get a 2.5% discount for early payment of your account.
To double your chances of successfully negotiating a rebate with suppliers, use your volume to push for a better offer attached with your payment record.
Also, don’t forget that in negotiating for a better deal, getting a cheaper price is not the only option. You might benefit more from different payment terms that take care of your cashflow levels.
When multiplied across your main suppliers, you will find these rebates quickly add up to more money in your pocket – cha ching! An additional benefit is that you will also find improved relationships with your suppliers as you develop a reputation of someone who always pays on time.
Manage your stock
One of the main cash flow issues for any small business is stock management. Depending on the style of business and the value of your stock, maintaining your stock levels so you can service your clients well without having cash left on the shelf is a difficult balancing act, but is crucial to creating better cash flow.
The size of your stock list is also an important aspect of this equation. Small businesses can fall into the habit of keeping products that are slow moving or high cost. These take up valuable high turnover and profitable storage or shelf space. It’s vital to make sure you keep close track of your stock list, and the amount of stock you carry, to ensure you are operating at optimum efficiency.
Another area that is often overlooked by small businesses is the timing of the orders. Do your cash flow a favour and make sure you are ordering product at the best time to take advantage of your credit account with suppliers and when the bulk of your orders are received.
Michael Reid is the founder of SME Savings, a free group buying service exclusively for SMEs