Finance Strategy

Smart strategies for generating cash flow – in times of crisis and always

Sometimes it takes a crisis to wake some small businesses up to the importance of healthy cash flow, says Raju Mohandas, a certified business consultant for Florida SBDC at FIU.

But now that we have your attention …

To effectively manage cash flow, you need to go line by line and dig deep in all the areas of the business – sales, operations, accounts receivables, inventories, accounts payable, expenditures etc. It’s an exercise that needs to be done regularly, not just in a crisis, Mohandas says. But now during this global pandemic it is more important than ever, with small business survival hanging in the balance.

Last week, we spoke with Raju Mohandas, a certified business consultant for Florida SBDC at FIU, who pointed out  that you can google and find any number of tips about managing cash flow, but simply pulling one or two of these levers and thinking that’s all you need to do is not going to get you there. There’s no one magic bullet. You need to be looking at all areas of your business.  You can read that post here.

With that in mind, today we continue our discussion today looking at specific ways to generate cash. Now and always, that starts with seeking out sales that increase cash flow. Always keep an eye on your gross margin, with the goal of generating more revenue with fewer sales, said Mohandas, who specializes in finance strategies and cash flow management.

This is also the time to develop new revenue streams to bring more money in the door. A maker of window films pivoted to face shields.  A seller of fresh fish to restaurants found a new market in home deliveries, a business segment that the company intends to continue to grow. Think creatively, Mohandas says. “The new normal is forcing you to do that. And you have to see what you can automate, making it convenient for your client, and making upselling easier,” Mohandas said.

Maybe that employee you thought you would have to lay off could head up a new division. “If someone’s job is on the line, I bet they have a different motivation,” he said.

Here are some additional ways to generate cash, according to Mohandas:

  • Review your gross margins and see how they can be improved through pricing or COGS savings.
  • While it is always good advice to increases prices where competition is least felt, you might be surprised that your customers will understand a temporary price increase because of the pandemic.
  • Improve discounts for larger sales quantities.
  • Negotiate long-term contracts with fewer, higher quality suppliers.
  • Subcontract low-skill elements to lower cost suppliers.
  • Can you redesign your product to reduce your costs without reducing quality?
  • Open new, shorter less costly distribution channels.
  • Introduce new technology to reduce sales costs and improve efficiency.
  • Sell off obsolete and slow moving inventories.
  • Collect aggressively. Get to know the account clerks — know the chain of approval to payment for each customer. Stay on top of any late payers – is there a sense of urgency?
  • Consider offering discounts to incentivize prompt payments.
  • Consider asking for payments up-front and invoice at delivery.
  • Revamp your invoicing system if needed. Make it easier for your client to understand the invoice and pay.

Next week we will look at ways to trim expenses, renegotiate terms and generate savings through accounts payables. In the meantime, we leave you with one more tip: Mohandas suggests small businesses spend at least a couple of hours every week managing their cash flow. And now, unfortunately, many businesses understand how important it is.

Please send GrowBiz topic suggestions and feedback to GrowBiz@FIU.EDU.

READ MORE on GrowBiz:

Healthy cash flow keeps your business afloat. Here’s how to manage it.

Cash flow: It’s not sexy but it is the bleeding heart of your business. Here are 5 ways to keep it healthy

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