Making your dollar go further

Whether you’re bootstrapping a start-up or conscious of costs, a few productivity improvements can make a big difference to your bottom line, especially if it’s difficult to immediately increase revenue. Here’s how.

Identifying problems with your spending and income levels is easier if you can track any gaps in your systems and processes that could be putting the crunch on your cash flow. If you’re constantly fixing cash flow holes, it’s not a productive use of your or your team’s time.

A few common culprits:

You may have a significant customer who never pays their invoices on time, which stresses your cash management, possibly leading to you paying your customers late. Stricter credit control and debt collection procedures will help.
Rising costs in production can affect your budget and erode profit margins. Sourcing cheaper suppliers only works for so long, and in most industries, it’s unrealistic. It could be time for a price increase. Use accounting software to keep a close eye on gross profit margins to catch slippage before it causes too much damage.
Develop a series of productivity metrics to continuously monitor and analyze key performance indicators (KPIs) such as revenue per employee, customer acquisition cost, or conversion rates. This provides insights into areas for improvement and helps in making data-driven decisions.
Business growth is fine, but rapid expansion can bring with it additional fixed overhead. The project takes two or three years to identify the impact of non-productive or non-chargeable overhead to ensure it’s worthwhile. For example, moving from 10 employees to 100 will need HR and middle management, who are unlikely to be assigned to a specific job.
If sales have been slower than expected, you might have to work towards a new strategy, go-to-market plan, or even a complete review of business viability.
From time to time, events beyond our control can ruin the best-laid plans. For example, a pandemic, supply chain issues, losing a significant contract, or having to invest in key assets can put pressure on your company’s finances. Diversification of your customer, production and supply base and careful cashflow forecasting is critical.

Taking a proactive approach to identifying these problems will help you pinpoint cashflow gaps and inefficiencies, allowing you to address issues before they escalate and drain time and resources from your business.

Free up cash where you can

Before you seek financial support from external sources, focus on freeing up money from within your business. You may be surprised at the difference these small shifts in spending can make to your budget:

Sell underused assets. It could be better to rent or lease the equipment instead, as and when required.
Downgrade or sell vehicles and consider lease options instead to save your cash reserves.
Track your expenses. Slash and burn non-essential spending.
Save by managing your inventory, aiming to hold just enough to service your customers.
Consider refinancing to move short-term debt, such as overdrafts, which may incur a higher interest rate, to longer-term loans with lower rates.

If you can free up some cash by doing the above, you’ll improve liquidity and reduce reliance on external financing.

Collect your money faster

Invoice immediately or provide online and mobile payment options. When negotiating new contracts with customers, be aware of setting payment terms that help your cash flow, such as deposits or progress payments.

Keep the following in mind:

For large contracts that take a long time to complete, negotiate progress payments based on completion.
Include a regular weekly or monthly timetable for the customer to pay their bill as part of any agreement.
Agree on clear milestones for completing the work to minimize the risk of the customer disputing an invoice and refusing to pay.
Curb how much credit you provide and to which customers.

Most industries have tools to collect payments immediately.

Collaborate

Joining with other businesses can help you stick to your budget and increase savings by sharing resources, people, ideas and capacity. The agreement can be:

Formal, such as a contractual obligation.
Informal, where you refer to work to each other or have a verbal agreement.
Significant, such as sharing suppliers and long-term customers.
Ad-hoc, where you come together project by project.

Collaborating can help you:

Divide tasks based on strengths and expertise, to focus on areas where your employees can contribute the most value.
Make faster decisions, as multiple stakeholders can provide input and feedback in real-time. This prevents delays caused by waiting for approvals or feedback.
Encourage a creative environment to bounce ideas, often resulting in more innovative solutions that may not have been possible in isolation.
Access new products, services, and markets by on-selling your own range to their customers or through their distribution channels.
Reduce costs by sharing resources and staff, or by securing volume purchase discounts for additional savings.
Enhance capacity to bid on larger contracts by offering broader services or presenting a larger business with enhanced capability.
Strengthening supplier relationships and meeting your budget by reducing your spending through bulk ordering.
Outsourcing production, so you don’t need to spend money on infrastructure.
Accessing new business models and ways of selling to increase revenue.

Collaboration allows you to leverage shared resources, expertise, and opportunities, ultimately stretching your budget, increasing efficiency, and identifying new revenue streams

Raise external funds wisely

You may have managed to plan, budget for, and fund your enterprise to this point, but consider other ways to raise capital through partners and your community. For example, explore crowdfunding, angel investments, government and local council support, venture capitalists and corporate investors.

Next steps:

Identify improvements to stay within your budget and create incremental gains to your bottom line.
Review your networks to identify who you can work with to complement your skill set.
Identify investors who may be interested in a new opportunity to invest in your business.
See what options are available to you through incubators or business grants.

Talk to us, your accountant or business advisor, for expert advice if you’re making significant changes.