There are conventional and unconventional strategies when it comes to mitigating risks, ensuring business continuity and making sure you have ample cash available. My example for today is a country. It's a continent. No - it's actually a company.
Why did they do this? There are undeniable benefits, for sure - here's my take on this:
- To reduce risk in our domestic market, the Australian government issues securities in the US market. To put this another way, they borrow money in the US market from investors. To be able to operate in the US market, the Australian Government is required to register and meet the filing and compliance requirements of the US regulator.
- It's fun to explain to the electorate how their country is ran by a private corporation.
Well, one of them must be true (haha). This was, by the way, around the previous economic turmoil of 2008-2009 when they wanted to prevent a run on the banks, and/or shooting up the inflation rate to the moon.
How can you ensure good cash flow?
Staying in the black is crucial to any business and it vastly improves survivability rate in the short and long run. Here are some proven tips on how you can make that happen:
Monitor your cash flow situation regularly
You would be surprised if I told you: most business leaders don't have systems in place that monitors cash flow at all times. Yes, sure, they ask/make interval reports, but that's that.
In marketing, there is an old adage: what you don't measure does not exist. The same could be applied in this case with a little change: if you don't monitor cash flow, your company will soon not exist.
Stay on top of invoicing
Send invoices when the work's completed or products are delivered, right then and there. Why wait?
If it's a private person or a small company, it's no hustle, but if your customer is a bigger firm: find out the specific person, job title and address to send your invoices to so they don’t get lost in a shuffle from department to department.
(By the way, this is a sadly often used tactic to delay vendor payments to improve cash flow at bigger businesses.)
Design your invoices so they’re straightforward and easy to read, with key areas like:
- due date,
- amount due,
- where to send payment,
- payment methods highlighted.
There are also tangible benefits when it comes to speed to email invoices instead of (or in parallel with, depends on jurisdictions) mailing them.
Ask for deposits and partial payments
Make sure there are limits on how you let customers enjoy your product and/or service before paying anything upfront. While the widely accepted practices differ from industry to industry and country to country, you have to generate enough cash to finance materials, vendors, workers for the job.
Let's take a website developer's case as an example. They might charge:
- 10% of the contract value deposit upfront when the deal is signed.
- 20% when specification is accepted.
- 25% after the first milestone is finished.
- 25% before testing has started.
- 20%, the balance, upon competition.
This way they engage their customer and make them incentivized in the development process.
Speed payments by offering deals
There are situations when you cannot ask for partial payments, yet, there is a solution you could use: incentive for early payment. While this is widely used in supply chain, I have not really encountered it with high-value services.
Full disclosure: You have to do the math prior using this tactic (so that getting paid early is worth the loss), but a percentage off the total can be sweet for some people.
Lease instead of buying
People with financial knowledge and experience will tell you: owning things usually cost a lot of money. And no, I'm not talking about just the price tag: insurance, amortization, theft, damages, etc.
Leasing computers, cars and other business equipment will get you nicer things in the long run and you will be left more cash on hand. In some cases, you still get to expense the cost of lease on your taxes.
Always consult with a tax planner and accountant prior to making such purchasing decisions.
Cash in on assets
There are cases when you cannot lease things, but you have to buy them.
When these things become obsolete and/or are in no longer use, sell them for quick cash. If you wait, most of the time, you just lose value and incur costs (storing, protecting, etc.).
I know, I know, this is real smart, call me Captain Obvious.
However, are you really cutting costs when you need to? Are you considering all of your options?
This piece is intended as general advice and there are no situations alike. Make sure you think through whatever you intend to do and consult with professionals. It might be tempting to cut costs on the tax planner or attorney, in most cases, you will be ending up pay much much more.
This applies to all businesses, however: cash is king.