Whangarei Business Sales – Business Broker Mike Ponsonby

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What goes UP, must come DOWN… preserve your business cashflow!

How to increase your business cashflow

When you Google ‘business life-cycle’ it will come up with thousands of images explaining what all of us already knew; what goes up, must come down…

While a business is in Start-Up mode you will gather momentum followed by rapid growth; through to maturity its sales will increase and will hit a tipping point, followed by a decline in sales.business cashflow

At this point there is a couple of things you can do;

  • Re-invent or make improvements
  • Sell the business to ensure its continuity
  • You could do nothing but that will, most likely, result in a decline and/or closing of business

Most of the time, when a business hits the peak of its performance, it is the current management that lacks the expertise and/or cashflow to fund the growth of a business. For some businesses the individual cycles last longer because of sound management in place. Often they have a strong emphasis on using well-documented processes to ensure its productivity keeps going up. Therefore, often it is the right decision to sell the business to a suitable strategic partner.

The value of your business will remain with a business in decline for some time, but only for as long as there is enough ‘meat’ in it for a purchaser to grow the business further. Waiting too long, (often caused by pride or lack of exit planning) will often result in a reduced sale price so it is fair to say that the best time to sell your business is before the decline sets in.

Anyway, I am writing this particular blog to give you tips on how to preserve your business cashflow to get through the decline in a business!

Most businesses that sell products will know that stock on hand is the most important part of the business. Often they have cash tied up in too much stock on hand. The biggest problem is not the stock, but if you now increase your sales your business cashflow will slow down. Yes, the more you sell the bigger the problem becomes!

Make it as easy as possible for your clients to pay. The following points will help you reduce your debtor days, therefore increasing your business cashflow;

  1. Send an invoice as soon as possible, instead of statements at the end of the month
  2. Show aging of statements as “current” and “overdue” rather than 30-, 60-, and 90 day terms as these encourage late payments. “Payment on delivery” and “7 day terms” on invoices are perfectly acceptable in this day and age
  3. Make it easy means giving your clients options; enable to view invoices online & offer as many different payment options as possible, including Direct Debit, Credit Card and cash
  4. Display Due Dates next to invoice total and send a copy of the invoice the day it becomes overdue

To calculate your Debtor Days; divide Debtors by Sales x 365; if these exceed 40 days you should review the points above to get paid quicker, automatically reducing the debtor days to an acceptable level.

If you relate to the story, feeling the business needs another business owner to take the business to the next level, start talking to a Business Broker early on in the process. In the interim try to improve and streamline your business with little improvements like these.

Selling your business usually takes anywhere from 4 – 6 months (for a business in demand, having a fair valuation) to 12 – 18 months when an asking price is too high. Strategic buyers are always looking for the right opportunity at the right price. This doesn’t men they look for bargains. In actual fact, for them it is not about price but all about being the right fit to add to their existing business. In some cases your business could be worth more to them than to any other partner.

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