Running a business is challenging at the best of times and ultimately you want that business to grow and become increasingly profitable. To reach the point where you can work less while reaping the rewards, it is essential to get the foundation right. Once you have that in place, your business should be running smoothly, with or without you, while simultaneously making you the money you dreamed off when you started out.
According to data from Statistics New Zealand, 53% of small to medium-sized enterprises (SME’s) fail within the first three years with a slightly higher rate in Australia at 60%. These statistics are grim and failure can probably be avoided if business owners leverage their time, efforts, money and knowledge more efficiently, rather than working harder than ever before to try and make ends meet. One of the first pitfalls that’s usually the catapult of the downward spiral can probably be blamed on the miss-management of cashflow.
Here are 10 costly cashflow mistakes and how to avoid them:
1. Mind over matter
If you are a business owner and now work harder than ever before, you need to weigh up the effort you are putting into your business versus the money you are making. This is probably the biggest mistake most business owners make, they spend so much time trying to run the business, they actually start missing the warning signs when the business begins to cost more than what it is making. If this is the case, you need to open your mind to a 360-degree change which will ultimately lead to you admitting you can make mistakes, owning up to them and choosing to let the business work for you.
2. Become a marketing genius
Stop spending more time to try and cut costs and rather focus on growing your income stream. Most business owners spend way too much time on getting their product or service to market or focus on distribution channels while they should rather put more effort into identifying the right marketing strategy. By implementing targeted marketing solutions it will result in driving more customers to your product or service offering, which will automatically increase your revenue stream and ultimately solve your cashflow problems.
3. Generate more leads
It is one thing to generate new leads but your cashflow situation will prove if you actually convert these potential leads into actuals clients. If you are generating leads through marketing efforts, you are halfway there, however, many business owners actually don’t even know how many leads are generated let alone how many as a result of a specific marketing campaign. Ensure that you measure the results of your lead generation by establishing how they learned about your product. Once you know which marketing platforms works for your brand, you can start focusing on refining your campaigns and spending your money strategically.
4. Increase your conversion rate today!
Once you learn to increase your lead generation the bigger challenge is to convince them to actually purchase your service or product. If you have their attention ensure that you offer them a guarantee of what they want. In other words, find out what your customers want more than anything and promise them exactly that. Just be sure to prepare for any returns or unsatisfied clients and handle it correctly. This way you will most likely not lose the client forever but rather impress them with the way they were treated.
5. The numbers
Many business owners sell to a customer once and never again because of a lack of interest or worse, not investing the time to get to know that customer. One customer’s repeat business can mean the difference between 3 or 30 sales a week. Take the time to do a quick internal survey to measure the current number of transactions per customer over a recent period. If your customers don’t return on a regular basis you need to make a concerted effort to change this. Also, stay in regular contact through e-mails, by mailing product specials directly to their homes or make a phone call to remind them of a discount period coming up. You can only stay in touch with your customers if you have their contact details. Ensure to collect this whenever possible.
6. Boost your Average Dollar Sale
This is such an effective way to increase your profitability but many business owners tend to focus very little on this area. Customers already spending money with you can easily be motivated through upselling by explaining the benefits of an additional purchase or you can consider raising your prices with 10% on average. Just ensure that you manage it well by reminding customers that they are getting quality products or services. You can also consider offering more than what your customers require or a package deal for instance. Once your customers receive good value and quality - which is the case if they continue to support you - they will be happy to spend a bit more.
7. Invest in your team
Many companies are ‘top-heavy’ with too many managers earning high wages. Once you start evaluating your company systems or putting new, effective measures in place, you will be able to identify and let go of the least productive staff members. Additional responsibilities can be distributed evenly amongst the remainder of the team or extra workload given to those who are capable of handling more. This will have a significant impact on your wages bill.
8. Look at doing it yourself
If you are selling a substantial amount of a certain product or item, consider manufacturing it yourself. This way you cut out the middle man and can make the most possible profit from each sale. However, it is important to learn as much as possible about the manufacturing side of things and also take the time to source good quality and the most cost-effective material. If you don’t do this right from the start it might end up costing you more than just rather outsourcing it.
9. Utilise your space better
With the recent COVID-19 crisis most service-related companies could set up their employees to work from home. A lot of business owners realised over the lockdown period that it is so much more cost-effective and saves you having to pay exorbitant office rental fees. If your business involves manufacturing and working from a premises is essential, then perhaps consider renting out unused space to a company that compliments your product offering
10. Buy only what you need
So many businesses run into cashflow problems because too much excess stock being purchased. Only carry the stock that you need at any given time and order more on demand. This is a really good strategy when it comes to administration costs as well. For instance buy the stationary that is essential and ensure to plan ahead. This way you will avoid last minute shopping trips which usually also results in purchasing unnecessary items.