Cash Is Not King, It’s Emperor
You’ve heard the expression “cash is king,” probably a thousand times. When revenues soften, it’s even more crucial to conserve the cash you have and to optimize the cash generated from operations.
Here are a few ways to improve liquidity so your business has enough cash to pay its bills, motivate employees and take advantage of some great deals:
· Negotiate payment to subcontractors based on performance, not just on a fee-for-service basis. A lawyer friend who owns a growing website has been interviewing SEO (search engine optimization) experts. They all have impressive resumes and charge a lot for their skills. But have they delivered real value for their clients? Has traffic gone up noticeably? Have e-zine sign-ups increased? Their solution was this: The site owner and the SEO expert agreed that if the site reached certain benchmarks, the SEO expert would get paid more than she would have under a fixed-rate contract. Rather than just hiring a SEO expert, now the site owner has a strategic partner.
· Ask for early-payment discounts from suppliers. If your suppliers don’t offer any discounts for paying promptly, ask for it. Review every supplier and be systematic about asking for discounts. Often, suppliers will extend discounts if you pay by check instead of credit card. If you pay in cash or cash equivalents, you should be rewarded for that. Make sure your bookkeeper or accounts payable clerk follows this policy consistently. Many suppliers offer a 5 percent discount if you pay within 10 days of receiving an invoice. Take the discount and deploy that cash elsewhere to drive revenues.
· Put the shoe on the other foot. Offer early-payment discounts to your customers. Bringing in cash sooner can reduce your cost of capital. It also provides an incentive for clients to pay your invoices first. You might also offer discounts for cash on delivery.
· Keep your computers in top condition. We all know this, but we’re often too busy to pay attention until our systems crash. One of my colleagues has a 4-year-old desktop computer. It was slow and crashed often. Instead of buying a new computer, he hired a tech to add RAM and reformat the hard drive. Now, his computer will keep going for another two years or so. This upgrade cost him a few hundred instead of a few thousand dollars. Buying time is what conserving cash is all about.
· Buy used equipment and furniture whenever possible. Take used furniture, for example. Norm Brodsky of CitiStorage said he didn’t buy a new desk until his company was generating several million dollars a year in revenues. Another colleague told me he outfitted his entire office with imported furniture at a fraction of its original retail price. “My office (furniture) makes it look like I’m a Fortune 500 company,” he said. If you have cash, take advantage of bargains on used office furniture and equipment.
· Breakfast is best. If you want to treat your staff to a meal, skip lunch or drinks after work. Buy breakfast. For example, Google caters a free breakfast for “Googlers” every morning at 6:30 a.m. By 7 a.m., it’s taken away. People automatically adjust their schedules to come in early for the fresh scrambled eggs and protein smoothies. Everyone’s concentration improves after a muffin and a cup of java. Breakfast is a cheaper meal than lunch, but still represents a great way to thank employees for their dedication.
· Make conserving cash everyone’s job. Brodsky challenged his employees in this way: If they found ways to reduce expenses and could prove the savings, he’d pay them a 10 percent bonus equal to the cash value of the money-saving idea. Every employee was now motivated to cut costs. The firm saved thousands of dollars by changing vending-machine suppliers to renegotiating the contract with their shredding contractor.
Even if you don’t have employees, ask your accountant, bookkeeper and local chamber of commerce members how to find new ways to conserve cash and keep your operation humming.