By Niel Malan
Many business owners have had a bit of a slow year thus far due to a tighter economy and now struggle with cash-flow. The following few points will give you some good ideas for boosting your cash-flow to help ease the burden:
1. Re-activate Inactive Clients
A good friend worked as an actuary for a large life-insurance company many years ago. He did some analysis on their database and found that they had hundreds of thousands of clients that they sold a policy to once, but never contacted again.
He put a telemarketing team in place and managed to get a hold of approximately 30 000 clients. 70% agreed to upgrade their low premium cancer policies to a higher monthly installment for double the benefits. Once they contacted everyone, they went back to the same people and re-upgraded them once more. To their astonishment about 70% of their clients upgraded again!
I am not at liberty to share what their financial rewards were from this exercise, but I can tell you it was very significant. Do you have old clients that you haven’t spoken to in a while, that may be ready to buy? Be sure to work your existing client list as it is the quickest and surest way to boost sales fast!
2. Get Rid of Dead Wood
If you have been running your company for some time, you are likely to have a few members on the team that aren’t contributing to results and that simply cost you money. Many entrepreneurs make the mistake of tolerating poor performance for too long because they feel bad to let people go.
What they don’t realise is that poor performance by a few team members puts the whole company in jeopardy and creates an unfair environment where other people have to pick up the slack for the work that the poor performers don’t do. My philosophy in business is very simple – hire slowly and fire fast if you realise you made a mistake.
3. Start Charging for Free Services
A while back I bumped into a client who shared a very interesting story. He is a furniture manufacturer in Randburg that makes all sorts of wooden furniture. He does about 30 deliveries every day, and used to do it for free as part of his service to his clients.
On my insistence he tried charging for the deliveries. At first he charged R75 per delivery and to his surprise nobody complained. He then tested charging R150 per delivery, and still nobody complained. Today he is making an extra R90 000 clean profit per month purely by charging for every delivery he used to do for free.
What products and services are you giving away for free that you can start charging for?
4. Stop Discounting!
The CEO of a big fitment centre group contacted me once to help him improve sales and profits of his loss-making company. By chance I needed some tires for my car, and I decided to get a fitment at one of their outlets. I drove into one of their stores in Fourways one Saturday morning and asked the sales lady to quote me on four new tires.
She took out her calculator, quoted the price, and then offered me a 20% discount without me even asking for it. To be honest, I had no prior knowledge of the prices of tires, and I am not a price sensitive shopper. I probably would have bought the tires without the discount.
The fitment industry only averages between 25% and 35% margin on tires, which means this lady gave away about 65% of their potential profits on the sale without even thinking twice. Be very mindful about discounting! According to MIT only 14% of purchase decisions are made purely on the basis of price, and you can usually get around discounting by educating your clients on the value you add by your products and services.
5. Re-negotiate Bad Deals
Business oriented agreements normally cost more and more the longer they are in place. But usually the value you get from the agreement doesn’t go up proportionately. Once I had an office of about 40 people in Johannesburg and my rental started off at about R60 per square meter. After a few years my rent escalated to close on R100 per square meter for the same office space, while the going rate for similar offices were about R80 per square meter. I was over-paying because I was locked into an agreement!
The same thing happens in a variety of areas. For example, often personnel who have been with a company for many years have received a steady 10% to 12% increase every year while delivering the same output. One way to boost your cash-flow is to go and re-negotiate all deals where you are over-paying.
Below are a few areas you can explore to give you a start:
Rental agreements including offices, equipment, etc.
Personnel contracts
Supplier agreements on pricing and terms
Terms with clients including payment terms, pricing, etc.
Professional services fees like accountants, attorney’s, etc.
Insurance products including life assurance, short-term insurance, etc.
6. Pay for Performance
My views on marketing are very controversial. Most people see marketing as an expense and don’t expect a measurable return. I view marketing as an investment, which means I track the results and corresponding returns very carefully. Let’s say I decide to run an ad in the paper to market one of our courses and it costs me R10 000. I expect at least a R20 000 profit from that ad, otherwise I stop running it.
The same thing goes for staff. When I start a business I will have staff on the payroll. But soon I pay everyone for every item of work they deliver, or a profit share depending on the profits the business makes. This way everyone is focused on the results of their work as opposed to the activity of their work. This practice incidentally makes your management life much easier as personnel keep each other accountable to good quality work and cost conscientiousness.
Evaluate every expense item in your business and see if you can reduce it down to a cost per item of work or to a profit equation. You will be amazed how quickly this thinking eliminates wasted expense and improves performance.
7. Analyse Your Management Accounts
A few years ago I was on the judging panel for an Entrepreneurship show on TV3. One of the panel members was a very accomplished accountant that brokered large deals. I asked him what he felt the most important difference was between companies that succeed and companies that fail.
Without hesitation he answered: “companies who take their management accounts seriously.” Implement a discipline in your office of evaluating and analyzing your management accounts on the same day every month, for example the 14th of every month. Look at the most important metrics like profitability, revenue, debtors trading cycle, stock-holding, etc. You will soon have a very firm handle on the performance of your business and spot areas for immediate improvement.
To Your Success!
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