Balancing Act

So you got off your bottom and have been looking at your books and you have come to the conclusion that you need to improve your bottom line. But how? If you need a 10% increase in net income then it may be easier to make a number of small improvements than to make one huge change.

A 1% reduction in 10 separate expense items will be very mild. But a 10% reduction in supplies, for example, will feel a bit more drastic.

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So where can you look for savings?

Account Receivable Collections. There is no rule saying that you have to wait for the bill to be past due to talk with your client. Try taking this approach: Instead of waiting for a bill to become past due, talk with your client a day or two before the the payment is due to verify that they have your invoice. If they haven’t received it, tell them you will fax it to them immediately.

By ensuring that your client received the bill and intends to make good on it, you can drastically reduce the number of days your invoices remain outstanding. There is something about the confirmation that puts your invoice at the top of your client’s list.

When you do get paid, be sure to deposit it in your account the same day! This will allow you to take advantage of short term interest. In any event, the check does not do you any good sitting in a drawer, does it? Lastly, you want to make sure the check is negotiated while your client still has funds in the account. If your client is strapped for cash then you want to be first in line. Verify with their bank that there are available funds to avoid bank fees.

Want to make your lenders and investors happy campers? Arrange a longer payout period with your vendors that is secured by a note. You will move the obligation off of your accounts payable and re-categorize the amount as long-term obligations. This gives the appearance of having more working capital.

Every day counts when you are looking at cash flow. Let’s assume you have $1,000,000 in sales and your receivables are taking 120 days to collect. This means that you have $328,767 outstanding in receivables. If you cut your collection time in half you will reduce the receivables to $164,384. You have effectively improved your cash flow by $164,384. Now we will take a look at your payables. Payables of $500,000 paid in 45 days instead of 30 days will give you $61,644. Combine these two strategies and you will have improved your cash flow by $226,028. Of course, this assumes no interest or late charges but it does improve your cashflow by a tidy sum.

Then there is always the ability to factor your receivables. In essence, you can borrow against the amount owed to you or you can sell your receivables at a discount to bring cash into your business quickly.

Labor, rent, inventory, equipment and marketing are the major costs your business faces. The more money you save in rent and equipment the more money you have for the stuff that makes money like inventory and marketing. Think about buying used equipment or fixtures to save money. Also if you can share space or use less space then that will save money too.

The last tip is to shop around. Take a look at the supplies you need to have on hand and see if there is a better source. Will vendors compete for your business? Don’t forget to factor in your time or the time of your staff as well. There are lots of opportunities to purchase items online at a discount. Always be looking for a less expensive way to obtain the necessary supplies and services.

Is there a less expensive telephone service available? If you already have broadband service then you might find a VOIP provider that offers a better rate. The technology has come a long way and may offer a way to leverage your internet service. Similarly, you may find that your web hosting is costing you more than necessary. Don’t be afraid to look at the quality of your service and look around to see if you can find a better hosting deal. Of course we can recommend www.hostbeagle.com (we own hostbeagle). Hostbeagle offers low rates and personalized service.

The point is that as a business owner there are always opportunities to improve your bottom line if you are willing to get off of your bottom and look.

Now go make some money!