Contributed to EO by Chris Ronzio, a recent guest on the EO 360° podcast, where Chris and EO 360° podcast host Dave Will discuss $33 Million in Funding.
“Cash is king.” You’ve probably heard this phrase hundreds of times in the business world.
It’s always been true, but cash flow is especially important to think about now as we’re (potentially) heading into a recession. A cash crunch can quite literally be a matter of life or death for your business.
You might think simple stuff like raising prices and pushing sales will boost your cash flow. But revenue doesn’t always mean an increase in cash. So, to help you brainstorm, I thought I’d share some things I’ve done over my years in business to help increase how much cash my businesses have on hand.
Buy in bulk, even if you can’t buy it all now
My first business was a video production and distribution company that I ran out of my dorm room in college. We’d ship literally thousands of DVDs every month. And every month, I’d go to a warehouse to buy DVDs, DVD cases, ink cartridges for the DVD labels, and all kinds of other supplies.
One month I went into the warehouse and the guy who ran it, Wayne — I’ll never forget his name — says, “Hey Chris, you’ve been coming in here month after month. Why don’t you make a bulk order?”
“Well,” I told him, “I don’t have extra cash to buy that much right now. I can’t just buy 10,000 DVDs.”
“Well, how many do you think you’ll buy in the next year?” he asked. “Thirty thousand? If you can commit to 25,000, I’ll give you the bulk price, and you can pay as you go.”
This immediately gave me huge purchasing power, and I ended up saving 30% on my cost of goods sold. So, even if you don’t have cash for a big bulk order, try committing to buying a large amount from a vendor and see if they’ll give you the bulk price. It’s a cash win for them, too, since they’ll have a consistent revenue stream locked in.
Weigh owning vs. renting equipment
That video company required a lot of equipment, and because video technology was changing so fast, I literally needed to replace my gear every year. Because our business was seasonal—we mostly shot videos for students and student-athletes during the school year—I knew when business was about to slow down, so I would plan to sell off that year’s equipment to recoup some of the cost.
That gave us a quick influx of cash to last over the summer, and when jobs came up, we’d just rent equipment. So if you know you have some equipment or technology that’s going to need an upgrade, consider selling it ahead of your slow periods and renting until it’s time to buy again.
Get payments up front
At Trainual, we sell monthly and annual plans. When we started out, I thought there was no way people would buy a year subscription to a training manual service. But fast forward two years, and half our sales are in annual plans because there’s a small discount tied in.
From a vendor’s perspective, this means you get 10-11 months of cash up front instead of one month, which can make a huge difference when revenues are falling. On your balance sheet, this shows up as “Deferred Revenue.” But in practice, putting that cash in the bank helps you fund expenses in the short term. Essentially, it buys you time when money isn’t coming in.
If you’re a service provider, you can also increase cash by raising the amount you charge up front for a project. So, say you’re charging 25% to get started—increase that to 50%. I was able to do this with my consulting business once I’d created enough demand because once you can control the payment terms, you can get a lot more cash from the get-go.
Ask for discounts
This one seems incredibly simple, but just calling your vendors and asking them for discounts can save you a few hundred dollars a month. That can add up to a lot of cash over a year. It costs your vendors considerably more to attract new customers than to invest in existing ones. Use this as leverage, and if you see a vendor offering an introductory sale or promotion, give them a call. Say, “Hey, I saw you’re running this special. I’ve been with you a long time—can I get that price?” Making a few calls can save you a lot of cash as the discounts add up.
None of this is groundbreaking news, but they’re all little things you can do to help your company’s cash flow. By negotiating with vendors, committing to larger supplies, changing your payment terms, and weighing renting versus owning equipment, you can pump some much-needed liquidity into your business. Remember, “Cash is King,” so you should always be thinking about ways you can maximize your cash flow.
Chris Ronzio is the founder and CEO of Trainual, a leading SaaS platform that transforms the way small businesses onboard, train and scale their teams. Chris is the host of “The Fastest Growing Companies” and “Organize Chaos” podcasts, as well as the author of the best-selling book, The Business Playbook— How to Document and Delegate What You Do So Your Company Can Grow Beyond You.