7 cost-reduction strategies to keep your business in the cash flow positive

7 cost-reduction strategies to keep your business in the cash flow positive

Reading Time: 6 minutes

As the owner of any small business, you can often find yourself running into cash flow problems, it’s a common experience. There could be many reasons for this. The cost of supplies, inventory or business operations can outweigh the money coming into the business. Without proper management of cash, your business could land up in hot water. So what can you do to get back to the cash flow positive and stay there? There are many ways that you can remedy the situation. A careful look at your budget and some financial planning will help pinpoint where you can implement change or curb expenditure to improve cash flow.

Here are a few examples to think about:

Find ways of bringing in new business and retain existing customers

The first step is to make sure you’re marketing your business to the right people in the right way. You might need to rethink your marketing plan or start marketing if that hasn’t been on your agenda. Maybe it’s worthwhile to run some specials or promotions to draw in more customers. There are various ways you can market your business. You can take the traditional route and market through radio and television, but it is generally more cost effective to market digitally. Whichever platform you choose, be sure that your message is targeted towards your customer base.

Secondly, don’t forget about existing customers. Take advantage of those relationships, turn them into brand advocates who keep coming back. Their experience at every touch point will influence whether they turn into repeat customers. One great tip is to engage with customers on social media – respond to comments timeously and share content with them that is engaging and valuable. Go the extra mile to answer their questions and address their concerns – especially when it relates to your business or industry, this can help build trust and encourage customer loyalty. Warm service will show customers that you have their best interests at heart and they will be more likely to support your business in the future.

 Compare quotes and build relationships with trustworthy suppliers

 One thing that you should be doing is forming valuable relationships with your suppliers. Building a solid relationship with suppliers will put you in a better position to negotiate with them – this means they are more likely to offer you discounts and special deals. Over time, and as your relationships with your suppliers grow, you could find more benefits like this opening up because of your longstanding relationship and the fact that you are bringing in business for them. For example, because you’ve built a good relationship and the supplier knows you are a trustworthy client there may be opportunities for discounts, or more flexibility in extending your credit. Instead of having just two weeks to pay a supplier you could push for four weeks. And because the supplier knows you’re good for it, they might be willing to accommodate.

It’s also a good idea to compare quotes from different suppliers, especially if you’re looking to launch a new range of items to add to your product line. This might require extra time and effort, but in the long run, it may save you some money. Just be sure not to compromise when it comes to quality. This, along with customer satisfaction is the lifeblood of your business.

Assess where you can save in the day-to-day running of the business

 We spend a big chunk of our lives at the office, so it’s understandable that we want to make it a comfortable environment for ourselves and our employees. But are you spending more on luxuries then you need to? Do you really need that fancy espresso machine or trendy office furniture? Consider what are needs and what are wants. If you find there is extra money for the luxuries then go ahead, but if you’re looking for ways to save and you know things are tight, rather spend money on what the business needs to operate efficiently.

This can even apply to the software that you need for business operations. Determine whether a subscription-based offering is reasonable and includes the features you need. For example, SAGE offers their basic One Accounting software for R2214 per year which includes invoicing, calculating VAT returns, and connects your bank. While SAGE is a well-known accounting software used by many businesses don’t be afraid to consider free software that is on offer and determine whether this would work just as well for your business. GNUCash is a free software tool that handles invoicing and credit notes, accounts payable and receivable, employee expenses and some payroll features too. While GNUCash will save you some money, the question you need to always ask yourself is if this suitable for your business? It could be worthwhile to make a list of potential software options for your business and jot down the pros and cons of each one before deciding. By doing so you can factor in the cost and weigh this up against the features and benefits of how this can service your business.

Go green

There are a couple of ways you can save money by being an environmentally conscious business. Why not go electronic, whether this is for emails, invoices or bookkeeping, instead of using reams of paper? If your business is paper heavy consider recycling. This doesn’t just save you money but can also bring in money by having items recycled by organisations like Sappi’s recycling agents. Use energy saving bulbs and unplug devices when not in use. Or, with the current water shortage in South Africa, encourage your employees to use water conservatively and fix any leaking taps as soon as you become aware of them. You may think these small changes do not make a big difference in your bottom line, but consider this: Brian Wilkinson, CEO of Green Building Council of South Africa (GBCSA), says a green building on average saves 25% in electricity. These energy efficient solutions may also help you qualify for tax incentives too. The incentive works on the basis of quantifiable energy that you save expressed as kilowatt-hours (kWh). For each kWh that you save, you will get a 45 cent tax relief.

Use your office space wisely

Office space can be very pricey – especially if you want a prime spot that’s accessible to a large customer base. If you’re renting a big office space but you only have a few employees, consider sharing your office space with another business.  Make sure that the space you rent is suitable for a small business and that subleasing doesn’t go against your own lease agreement. Alternatively, a shared workspace will save you a substantial amount on utilities as well. For example, The Bureaux Flexible Work Habitats offer a desk space for R1,850 per month and it includes necessities like electricity, water, and Wi-Fi connection. This is a great option if you run a business that’s flexible like a digital marketing agency. More and more people are working remotely these days and because most businesses have gone digital this is becoming more widely practiced as it lowers overheads. Of course, this isn’t ideal for all businesses. If you’re in the restaurant or offline retail industry you need a store front. Renting or buying property can be expensive so it is important to understand what your business needs so that you aren’t wasting money on a few extra square meters that you aren’t actually taking advantage of.

Invoice customers as quickly as possible

As a business, you want your clients to pay you as soon as possible. In order to get paid quickly, be sure to invoice them immediately after the service/product has been provided. When it comes to services offered by electricians, plumbers and other similar trades a good strategy would be to offer discounts as an incentive for paying early – if you can afford to do so. While giving a discount may tighten margins slightly, it will also manage to free up cash flow in your business. In the past, businesses generally used to give 30 days for a client to pay, but this is starting to change. Xero conducted a study which found that 70 -80% percent of businesses give 2 weeks or less to pay, and more than half of those request payment within 7 days. Be sure to mention the payment deadlines in your service agreement to avoid unnecessary misunderstandings.

Be proactive

Don’t wait until your business is experiencing a cash flow slump. Make sure that you have documented a plan and have a cost-reduction strategy in place so that when the leaner months come you know exactly what to do to help your business. Every business is bound to experience a bump in the road, but the true mark of a successful business is having a strategy and managing cash flow to help overcome this. Every hour a business owner spends worrying about cost-reduction is an hour they could be spending focusing on the business. Don’t shy away from spending money where needed, but don’t be afraid to eliminate costs in areas where it is not.

Short term business funding is also a viable option to help your business if you are experiencing a dip in cash flow. Sometimes access to funding can help you purchase more stock or inventory to increase sales and bring in more business. Short term business funding also ensures that you are paying the loan off quickly and not getting yourself into a debt cycle. At Lulalend we help SMEs get quick, easy access to business funding so that they can see success and not digress. With business funding of up to R500 000 and flexible repayment plans, you can turn things around for your business and remain in the cash flow positive.

 

Top 5 inventory management tips to supercharge your business

Top 5 inventory management tips to supercharge your business

Reading Time: 5 minutes

As a business owner in the food industry, you have a lot on your plate. You have to deal with managing staff, financial planning, ensuring that your restaurant meets industry standards according to the Health Act of 1977; not to mention coming up with a killer menu to impress customers and meet their expectations. But there is one aspect of your business that can put your head in a serious spin: inventory management. You have to track inventory and be constantly switched on with what stock you have on hand, what’s running low and how to keep all of it fresh so that you’re not wasting food and money in all the wrong places. Food products tend to expire quickly, adding to the difficulty of stock control.

 

 

As the disgruntled customer suggests above, when a restaurant runs out of food it is terribly disappointing and negatively impacts your brand. Can you blame this person for not wanting to go back? This is why it’s important to maintain a steady supply of inventory – letting down your customers will only result in a damaged reputation. Because of the havoc this can cause we’ve put together a list of the top 5 things that you can do to make the process of managing stock a lot easier.

Check the stock when it’s delivered

Inspect the products, checking that the correct quantity has been delivered and that the items are not damaged. As far as food items are concerned, be sure to check that the best before dates are not coming up anytime soon. Imagine wasting your hard-earned money on produce that won’t yield any profit. A careful look at any new stock received will save your business money in the long run. You will be able to pick up any shortcomings in the items received and improve the overall efficiency in the day to day running of your business.

Track and analyse your inventory

Are you overspending when it comes to stock? With proper care, you will be able to evaluate how much you need to spend so that you have enough to meet your needs and avoid excess produce that will only go to waste. It’s a good idea to keep track of what menu items are most popular, this will give you a good indication of what you need to purchase more of and what you can cut down on. Estimate how much inventory you will need based on prior sales or seasonal demand and change these based on shifting customer preferences and new sales trends.

Tracking your inventory will give you a good indication of your most popular dishes and which products generate the most revenue. This will give you a clearer picture of the amount of inventory you need to order. If crunching the numbers isn’t your strong point the Wilson EOQ Model created by Ford W. Harrison provides a great formula for determining the optimal order size for a given unit of inventory. By looking at your inventory data you can get valuable insights into how your business works, what sells and how to make improvements as you go along. By analysing your inventory data, you might also discover that another supplier provides better value for money.

Store stock in a secure place

Produce like meat, vegetables and fruit should be purchased on a regular basis so that your meals are always fresh. Non-perishable items like tinned food can be purchased in bulk since this has a longer shelf life. Make sure you store all items in the right place under the right temperature so that they won’t go off before the expiry date. This will not only save you money, but it’s also kinder to the environment as discarded food ends up in landfills where it rots and releases harmful greenhouse gases. According to CSIR principal scientist for pollution and wasteDr Linda Godfrey, a third of all the food produced in South Africa is wasted. At an alarming cost of roughly R60-billion a year that’s equal to 2.1% of our Gross Domestic Product (GDP).

Use software to manage your stock

In the digital age, we all welcome a little help from technology to lighten the load and improve productivity. There are many applications designed to help you effectively manage stock. When you have a hectic workload it makes little sense not to take advantage of some kind of software to help you better manage the inventory you have. Think about how much time you will save by using this type of technology, instead of relying on pen and paper or tedious excel spreadsheets. Some great online tools include the Goods Order Inventory System (GOIS Pro) – a web and mobile application designed specifically to address the inventory management needs of SMEs. This app can be used both online and offline, making it easier to help your business automate inventory processes. If you’re looking for a free version of software, then opt for Stockpile. This online inventory system for small businesses gives you valuable information about inventory turnover with great reporting functionality. With useful features like adding inventory, taking returns, recording sales and checks for damaged goods, this nifty application is sure to get you on the right track to controlling your stock. Because restaurant owners do a lot of running around, cloud-based or mobile friendly systems are always a plus and make it easy to access information from anywhere.

Find trustworthy people to manage stock

Even if you’re using software, you still need people that will help control your inventory. Generally, it’s best to hire two staff members to perform this function. Two sets of eyes make it less likely that anything will be missed during the inventory count. Alternatively, if you can’t afford to hire staff to count stock, ask existing staff to do it as part of their duties, or manage this area yourself if you have the time. Whether you hire staff or conduct the stock check yourself, make sure that this is done on a regular basis.

When it comes to inventory management it’s vital that you have a clear plan in place which will help you work out a budget that is in line with what you require. Inventory management may seem like a very stressful and lengthy process, but it doesn’t have to be that way. Sometimes as a business owner it’s okay to step back and admit that you don’t have all the answers. Challenges are bound to arise so there is wisdom in using your staff or making use of online resources to better manage your business. If you need extra help in this area, it may be worthwhile to get a mentor who understands your business needs. For advice on finding the right mentor check out our blog on the NSBC.

If you know that investing in staff or purchasing inventory software will help your business, don’t let a lack of capital stop you. This is where businesses like Lulalend come in. If you need quick, easy access to business funding you can apply online with us and see the money in your account within 24 hours. Don’t put off investing in the things you need to help you improve your inventory management and grow your business because you don’t have the cash flow on hand. Speak to us about small business funding between R20 000 – R500 000.