Cash is Still King in Business
Are you strapped for cash during the holidays? Is your business struggling to keep up with the bills while still effectively serving your clients? Many business owners take cashflows for granted, and they simply pay what they owe on their bills. However, cashflows is a critical part of your business success, and cash is still king. You need to be able to manage both your cash inflows and cash outflows appropriately in order to grow your business. You have to be able to optimize both your cash inflows and your cash outflows. This article discusses cash outflows in order to help you save cash during the holidays. Here is a list of the ’12 ways of Christmas’. In laymen terms, it’s a list of 12 (plus one extra) ways that you can work with your vendors to save more and spend less during the holidays.
1. Revamp your supply chain by choosing the best vendors at the best prices. Are you doing price comparisons with your vendors? Are you analyzing the rates of at least 3 suppliers before you choose one? Comparative shopping is essential to selecting a vendor. You want to get the best service at the lowest price. Make sure that when you choose a new supplier that you have thoroughly gauged how that supplier stacks up against other suppliers.
Also, you should make a point to analyze your vendor relationships (especially in terms of payments) at least once a year. Find out what you’re paying. Make sure that vendors honor your business, and offer you incentives or rewards for staying with them. Likewise, you want to ensure that you are continually getting the best service from the best supplier. Otherwise, you may have to move on to a better supplier in order to grow your business.
2. Negotiate current payment rates. Are you afraid to negotiate prices with your suppliers or service providers? Well, you may want to try to get over that hump. Negotiating is just a part of business. Besides, if you’re strapped for cash, many of the suppliers you deal with are probably also strapped for cash. Though it seems counterintuitive to try and negotiate a better rate from vendors that you do business with if they are lagging in sales, it’s commonly done in business. In addition, as much as you may think that your suppliers do not want to negotiate, given their financial struggles (if they have any), they really do. The reason is that if you’re a good customer, and you pay on time, the last thing they want to do is lose you to a competitor.
Still, count the number of times you have been in situations where you were about to cancel your membership or service from a supplier. Then, to your surprise, that supplier offered you a better rate just so you would stay with them. That’s proof that negotiating is done frequently in business, even with suppliers during lagging sales.
Suppliers may be flexible with your payment rates. However, you will never know for sure until you ask. Don’t be afraid to negotiate for better rates. The worse that can happen is the service provider says ‘No’ and you end up paying what you were paying before you asked.
3. Get extendedcredit terms. Are you having trouble paying for a product or service all at once? If so, you may be able to postpone payments on certain accounts. In such cases, ask your supplier if they are able to offer you credit. That way, as opposed to paying one lump sum of money at one time, you will be able to pay periodically towards your balance (i.e. Monthly, weekly, or other).
4. Order in bulk. Bulk orders, whether your vendors supply you with a product or service, can definitely help you decrease your business expenses. Most service providers will give you a discount on their services when you order in bulk. If you can afford to, pay lump sum amounts. For example, pay for one year of service upfront; likewise, pay for many cases of X product as opposed to just one case. The money you pay upfront will probably save you from having to pay even more money over time.
5. Create futures and forwards contracts. Who says futures and forwards apply to investors only? Those terms also can be applied to your business and vendor relationships. A “futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) with delivery occurring at a specified future date, the delivery date.”
Similarly, “a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today.”
See if any of your suppliers would be willing to create a futures or forwards contract with you on your purchases. That may prove favorable for your cash position by helping you save money on purchasing products or services you would have to buy anyway.
6. Take advantage of discounts. Don’t skimp on the opportunity to reduce your accounts payables even further by taking advantage of supplier discounts. Supplier promotions can really help your suppliers retain you as a customer, while providing you with added value as their client. Your vendors will probably market their promotions to you in a number of ways, including newsletters, email, their website, and more. Be sure to keep an eye out for their special discount offers, which will do nothing less than save you money.
7. Get rid of services or service features that you don’t need. Not getting all that you expected to get out of a product or service from your supplier? Do you have too many features on that software subscription that you just purchased? Are some of your programs being underutilized and overpaid? Then, by all means, get rid of the waste.
Just like with your cell phone plans, you can get rid of the business services that you pay for monthly, but use seldom. For example, if you have a service on your cell phone that you rarely use, you would probably call in to cancel that service to decrease your monthly bill. Well, you need to do the same thing with business products or services that you’re paying for, but don’t necessarily need. Doing so will increase your bottom line, simply because it’s decreasing your cash outflows.
8. Fully utilize what you have so you don’t have to buy more services. Use whatever services or products you purchased. You really do you and your company a disservice if you pay for products or services and don’t fully use them. The term capacity utilization comes to mind in the case of underutilized assets. “Capacity utilization is a concept in economics and managerial accounting which refers to the extent to which an enterprise or a nation actually uses its installed productive capacity. Thus, it refers to the relationship between actual output that ‘is’ produced with the installed equipment and the potential output which ‘could’ be produced with it, if capacity was fully used.”
Obviously, fully using the products or services you purchase from vendors is in the best interest of your company. Make sure you fully deploy all your business assets.
9. Share costs with your partners. Do you have any business partners or affiliates? If you do, and you share a particular product or service with them, see if you partner is willing to split the cost. You can set up a split cost based on the amount of usage of that product or service from each party. Most partners will probably oblige, especially if they’re dealing with you fairly.
10. Sign long-term contracts where possible. Long-term contracts, similar to the futures and forwards discussed earlier, can be a great way to reduce your cash outflows. An example is when you purchase your company’s cell phone service in a two-year rate plan. Longer terms just typically cost less than short-term agreements. Suppliers want to keep you as a customer, so they often give you incentives like reduced prices, for signing long-term agreements.
11. Take advantage of membership benefits through partner sites. Now, I didn’t really consider this option until a couple of days ago. That is, to take advantage of member discounts from sites that partner with your suppliers. Be sure to check into the member benefits of some of the organizations in which you are affiliated. Insurance companies typically offer similar discounts on their services if you are a member of any of their partner sites (call your insurance company to be sure). If you’re not a member of any organizations that may give you discounts on their partner sites, consider joining some.
12. Pay after the holidays (companies can expense it and defer income). I’m no accountant, but I imagine there are a couple of key benefits to your suppliers if you can somehow defer a payment until after the holidays. One is that some suppliers may be able to defer their business income (from your payments to them) until ‘next year’, and not be taxed right away (depending on their accounting system). Secondly, they can probably increase their business expenses for this year, which is a tax write-off. If you have a good relationship with your vendors, why not try and see if they’re in a holiday mood? Ask them if you will be able to pay after New Years’.
Get a loan [The extra way]. This is a last option as far as I’m concerned. If all else fails, consider taking out a loan to pay your suppliers. You may be able to get a loan from family or friends. If so, it’s likely you will get a very good interest rate (if any) from them.
Alternately, consider getting a short-term line of credit or a credit card from your bank. Credit unions should also be able to help you out with regard to loans.
Again, loans are a good option, but they will increase your debt. Consequently, you may want to consider them as a last resort. That is, it’s probably only worth getting a loan if the ROI for any of your current projects far outweigh the costs of the loan. Another justifiable reason for taking out a loan may be if your back is up against the wall and you’re in an emergency situation.
There are probably a number of additional ways that you can save money and spend less during the holidays by assessing your cashflows. However, this article, at the very least, provided you with a start. Cash is king, and the management of cashflows is the heartbeat that keeps the kingdom alive. Assess your cash outflows and make it a habit to continually look for more ways to save and take your business to the next level.