Three great ways to free up cash fast

Making more and more money in your business is what financial success is all about. That’s not greed. That’s just the reality of business. You have to be constantly focused on improving profitability, improving cash flow, and increasing the value of your business.

Generating above average profitability and cash flow makes it so much easier to grow your company and take on your competition. It makes it possible to reinvest in your business each year, bring on new talent to help you get to the next level, and put more cash in the bank for you as the owner of the business.

Driving your cash flow higher is one of the smartest things you can do to for yourself and everyone involved in your business.

Below are three ways you can free up cash really fast in your business (because we all know that Cash is King)!

STOP doing things that lose money – One of the fastest ways to make more money is to stop doing things that lose money. Sounds like common sense, right? Be careful though. Like the saying goes “common sense is not so common”.

I have seen very intelligent, very experienced business people break this rule over and over again. And the really scary reality is it usually happens on the big stuff. Not the little projects that have a small impact on profitability. It’s almost always big initiatives and things that lose big money.

Old habits die hard. One client was so attached to a specific strategy that was losing about $450,000 a year that it took almost six months of constant nagging before he finally did the right thing. He finally said “stop”, and instantly, a huge cash flow drain on the company went away. Everyone on the outside thought he was brilliant when they saw the incredible turnaround in profitability and cash flow. What many of them did not know was the owner finally put a stop to an activity he had earlier championed. It took a long time for him to face up to the reality that the likelihood of that initiative succeeding was very, very low.

So find that project that is losing money for you and put a stop to it. That’s a fast way to increase your profits and improve your cash flow (then send me a note about how much cash you saved doing it!).

STOP “collecting” accounts receivable – Starting today, teach your staff that turning accounts receivable into cash is about expediting rather than collecting. Sounds like a small distinction doesn’t it? However, it can make all the difference in the world. It’s easier on your people and your customers will even appreciate it. Customers won’t feel like your company is beating them up. It is a more respectable process all around. And best of all, it will help you collect more cash, do it faster, and reduce bad debts.

Most people think about collecting as a hard-nosed, demanding approach to making someone pay. That’s true in some cases but with most businesses, especially larger ones, that approach is counter-productive. If you sell to larger companies you need to think in terms of expediting their payments, not collecting them. You need to understand exactly who needs to receive the invoice, who has to approve it, and how their internal workflow routes the invoice to the accounts payable department.

The whole process starts with a call where you let the customer know you have a feeling you are not doing a good job in the way you invoice them because their payments are coming in late. You set the stage that you consider the problem to be on our end and you want to make things easier on them by making sure you submit invoices in a way that makes their job easy.

That approach is non-threatening and helps your staff develop rapport and a relationship with the people inside the customer who can ensure payments flow smoothly. I have seen it work miracles in speeding up the payment process and turning receivables into cash fast.

Go out and touch your inventory – Inventory may be one of the biggest money pits in your company. It’s amazing how fast money is lost in many businesses because the owner is not maniacal about controlling it. Inventory is a very fickle asset. One minute it’s your best friend. The next minute it’s your worst enemy.

What always happens is inventory slowly builds during the year. The slow or non-moving inventory gets pushed aside and management can’t see what’s happening because they are focused only on the income statement. They are seeing the cost of goods sold every month. What they aren’t seeing is the cost of what’s NOT sold.

Eventually though, reality raises its ugly head and management does the work to dig into the detail, figure out what’s bad, mark it way down, take a big inventory write-down that flows through the income statement, then get rid of the old stuff in an attempt to salvage at least a little bit of the cash that was used to buy it originally.

The better approach is to go out today and touch every item of inventory you have. Imagine as you touch it that every item of inventory is cold, hard cash.

Ask questions about anything that looks old or has been around for a while. You will get people’s attention when you do that. And you should even consider putting additional controls in place at the point of each order so you can personally learn how well your staff is buying. That’s the point in the process where you can save yourself loads of cash and avoid big write-downs in the future.

Making money and improving cash flow requires focus and persistence. It requires that you show everyone in your company that financial results matter and you are always working on ways to put more cash in the bank.  That’s how you build a strong company that takes care of you financially and a company that takes care of the people who are counting on you.

Pick one of the steps above and get started. I guarantee it will improve your cash flow within weeks of implementing it.