In over 15 years of working with the small business owners, almost all of my clients at one point or another have been astonished by the amount of money that was falling through the cracks in their business.
And especially in difficult times, it’s important to track every dollar that goes out of your business to make sure it is working its hardest to put more money back into your account.
And also, it’s critical that action is taken ahead of time while it’s still in the preventative stage, rather than waiting until you have a crisis on your hands. Because by then, business owners find that it’s much more expensive to deal with, and could potentially even cost them the business.
So to give you some ideas of what I’ve known to work, I have provided a couple of suggestions below:
First, I generally recommend that business owners decrease expenses.
However, cutting a percentage across the board usually doesn’t work well. Because for example, if you lower your marketing expenses, they might also lower your sales numbers. So the best approach is to focus on expenses line-by-line, and determine which ones are absolutely necessary to the value-adding activities of your business, and those that you can probably do without – or with less.
A good principle is that if you can live without it at the moment, then hold off – in order to keep the cash in your account as long as possible.
But then again, you also must consider how each decision will affect your taxes, considering that tax is one of the largest expenses that you you’re paying overall.
And secondly, keep a close eye on inventory.
You shouldn’t allow it to grow, but you should get what price you can for it when it’s been around for too long. It’s better to get a little for it now, than to risk not making any profit on it at all.
In addition, see in what ways your customers could provide the raw materials, or look for options that can allow you to receive inventory just-in-time.
And finally, if you can persuade your vendors that it’s a mutual benefit – as they do actually have a stake in your businesses health as well – you may be able to extend your payment terms by paying a slightly higher price. But of course, you must consider if it’s worth it by comparing your margins.