Q: While my company generates great total annual revenues, we often find ourselves in month-to-month cash flow crunches. What tools and strategies can I employ to bridge cash flow gaps and create a more steady cash flow?
--Laura, North Dakota
The following answers are provided by the Young Entrepreneur Council, an advocacy group founded by serial entrepreneur Scott Gerber that works to take action against youth unemployment by teaching young people how to build successful companies. The council's members include Generation Y entrepreneurs and experts in a variety of fields.
A: Offer Discounts For Pre-Payment
You'd be surprised how many of your customers might be willing to pre-pay for your services or products if you offer a nominal 2-5% discount. You can also use any number of invoice factoring services, who will buy your unpaid customer invoices at a discount of face value, or even better get a line of credit from your bank secured by receivables or company assets.
--Matt Mickiewicz (
@sitepointmatt), co-founder of
99designs
A: Are your growing pains self-inflicted?
The fact that you have "great total annual revenues" but sometimes struggle with monthly cash flow leads me to believe your fiscal priorities may need to be reexamined. Perhaps you are simply spending too aggressively and trying to grow too fast. Identify your overall trends (there should be some consistency) and challenge your greatest expenses to see what you can outsource on a need-to basis.
--Kent Healy (
@Kent_Healy), founder of
DontGetBurnedBlog.com
A: Focus on Revenue Generating Activities
The largest problem entrepreneurs face is the pull between revenue generating and "brand building" activities which do not generate in steady cash flow.To bridge cash flow gaps, focus on your top 3 revenue generators and put your "brand building" on hold.Focus on what is actually driving new business and what has worked!Create products that are priced to sell, rather then selling high priced items
--Kris Ruby (
@sparklingruby), founder of
Ruby Media Group LLC
A: Try to get a line of credit from your bank
If you've been in business for a while and are growing revenue year over year, then ask your bank for a line of credit. This can be an effective way of bridging your cash flow in cyclical businesses, or businesses where there is large short-term investment happening. You'll be surprised how easy getting a line of credit can be--if your business is a few years old and has been growing.
--Eric Bahn (
@beatthegmat), founder of
Beat The GMAT
A: Create a Continuity Program
Building a product or service that has recurring monthly income that automatically bills the customer is the holy grail of cashflow; the meter is always running. Deliver value on a monthly basis and lock in your consumer at a lower rate. Think how easy financial projections are for a "book of the month club" or a property manager who has year long contracts.
--Matt Wilson (
@Mattwilsontv), co-founder of
Under30CEO
A: Learn to save for a rainy day
If you can't get a line of credit (need 2 years tax returns with profits) from the bank to allow you to dip and pay back when times are good, you must have a month to month budget based on forecasting revenue vs expenses by using past numbers to form the budget. In the good times, you must put away more money instead of distributing it as profits. This will be used during the bad months and take away cash flow problems.
--Michael Sinensky (
@msinensky), co-founder of
Fun Bars
A: 0% Interest Is Your Best Friend
Many credit card companies offer limited time specials such as 0% interest for 3-18 months. In addition, these credit cards enable you to consolidate all of your existing debt. But be forewarned, you MUST pay back the debt before the promo rate ends or else you will face massive balloon payments. After you pay back the balance, cancel the card, then repeat this process again when needed.
--Scott Gerber (
@askgerber), founder of
Sizzle It!
Follow Scott Gerber on Twitter:
www.twitter.com/askgerber
1. Negotiate longer accounts payable period with your suppliers and vendors and use that to your advantage.
2. Stay on top of invoicing & accounts receivables, i.e. automate the invoicing and regular payment reminders to collect the receivables.
3. Help your clients PAY YOU! Let your client choose to pay for his purchase in a combination of cash & referral bonus. Let’s say a client’s purchase from you is $1K, client pays a fraction $500 in cash & the rest $500 s/he promise to earn as a referral bonus, i.e. @10% referral bonus, the client would refer a total of at least $5K business to you in next 6 months, & if not, then s/he pays cash (the unearned bonus). Simple.
Good luck!