Having a small business is an incredible idea, especially when it is one that utilizes your exciting skills and expertise. You will find through some basic research that the life blood of any small business (and, any Fortune 500 company) is cash flow. I learned the importance of cash flow in 1983 when I started my very first business, so I know just how tricky finding revenue can be for the newbie small business owner.
I find that a common struggle for many entrepreneurs out there is education. Many of you who have graduated from universities are taught to view cash flow differently if you studied accounting than if you studied business. The simple definition all entrepreneurs should use is this: cash flow is money coming in versus money going out. This is no different than our personal bank accounts. If we have more money coming in than what we are spending, we are doing well. If our spending exceeds our income, our safety net will disappear.
No matter what size business you have, if you don’t have properly balanced cash flow, there is no way to keep the doors open.
Now that you know just how vital reliable sources of cash flow are to a business, let’s discuss a few ideas to increase cash flow:
Do you need financial support to launch a new product or project? You may want to consider outside financing. Don’t cash in your 401(k) or drain your personal savings for a small business. Instead, find a reputable lender to work with. While this can be challenging for start-ups especially, there are many ways to get creative. Check out outside investors like Angel Investors or a similar group in your community. I also recommend you have a bulletproof business plan so you can present it to organizations like SCORE or other business advocacy and training resources. These organizations can help you get financing or assist with the training your company needs to get off the ground. Remember the downside of outside assistance: you will have a repayment bill. But you avoid jeopardizing your personal assets and minimize risk.
What does the right employee have to do with cash flow? Everything! If you are a tried and true entrepreneur, you have likely learned from past mistakes that hiring the wrong staff can be detrimental to your business’ success. The right team member is someone who can oversee and manage those below you in an effective way. He or she will take the pressure of smaller tasks off your plate so you can focus on the areas you are most passionate about. You will never grow your business without the right help, so do everything you can to invest time and money in the right staff.
Monetizing your business can be tough depending on the industry, but it is necessary. Consider rearranging your business model or services to show value to both customers and prospective business buyers. For new entrepreneurs, know the multiple. A multiple is applied to a specific financial metric of a company to calculate the business’ valuation or assess its reasonability. Calculate your multiplier. Does the multiple create recurring revenue? Depending on the industry, the multiple can be dramatic.
Have you considered creating a membership or club for your customers? This can be something simple and low-cost like a monthly e-newsletter with clever branding, or something complex like a home delivery service. Brainstorm a few membership ideas with your partners or a star employee to find out what might work best in your line of business. Don’t forget to factor in any and all costs, as they will add up on a recurring basis.
Creating written content can seem daunting at first, but there are many different ways you can utilize your ideas to make money without actually creating a new product for sale. If you have a long commute to or from work, you can start recording your thoughts about the industry or major news stories. Translate these recorded words online to a blog interface and sell ad space. You have instantly created monthly revenue. If you gather a strong following, you are also marketing to an audience on the digital space and expanding your business’ reach. You can even reach more people online by starting a podcast or YouTube channel covering similar content.
Have you considered ways to bundle your products and services for your customer? This could make a big difference in your sales. Consumers are absolutely bombarded with choices in today’s constant-contact advertising world. You can make their decisions simpler by bundling together related items in a package for sale. Think about your last trip to a fast food drive thru. Did you order your meal in separate pieces (a cheeseburger, a soda, and onion rings) or did you order a “meal combo” (a cheeseburger, the larger soda, and the larger size of onion rings)? Many consumers choose the second option just because it saves them time and energy when ordering. This is beneficial for you as the seller as well, because you have the opportunity to include less popular items you are trying to sell in the package.
When was the last time you analyzed all of your monthly expenses? What about the last time you did price comparisons for the daily products and services you use for your business? If it’s been several months, you may want to take a closer look. You may want to a second pair of eyes to analyze everything if you are comfortable sharing your company’s expenses with a partner or a loved one. Any fixed expenses you can reduce or eliminate will improve your cash flow.
The Bottom Line: There are a million different types of businesses you could start with the right idea, the right passion, and the right research. Make sure you are well-prepared in all aspects of your small business cash flow. Don’t be afraid to think outside the box for new sources of income. Remember: small business owners must plan for retirement too! Discover how Sanchez Wealth Management, LLC can help you plan for your retirement. Contact us today.