Squeeze More Cash Out of Your Business

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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When times are tough, finding ways to squeeze cash out of your business may mean the difference between survival and failure. Here are a few ideas to stimulate your cash flow that you may not have considered.

1. Increase Revenue

When the economy is slow, finding new ways to make money isn't easy but it's not impossible. Consider, for example, sales-based incentives, or develop referral relationships with related businesses, and offer customers incentives for repeat business.

Try a PR stunt. Do something wacky or touching or generous and make sure the world knows about it, especially the local media. It's cheaper than advertising, and you can do it yourself with a little creative effort.

2. Speed Up Cash Coming In

Look carefully at how well you manage your accounts receivable. After all, the sooner you have your customer's money, the sooner you can use it.

Don't let someone else's cash crunch become your problem, too. If instead of paying in 30 days (according to your policy) customers are paying you in 60 days, you're solving their cash flow problems while creating your own. In fact, you're lending them money interest-free.

3. Decrease Expenses

Blanket cost-cutting, hacking 10% off everything in your expense budget, won't work. Cutting your advertising budget will reduce expenses, but that will reduce sales too.

Check large items in your expense budget, and make sure you're paying the lowest price possible. If they haven't been rebid lately, you're probably paying too much.

Take a positive step and establish budget-based incentives for everyone, and offer individual incentives for cost-saving ideas. For that matter, consider a profit-sharing program tied to net income, and thus expenses.

Or, if you're feeling less charitable, make managers and employees part of your budgeting process. Make them insiders; let them share the pain. When they discover that during tough times you're taking home less than they are, you may find a dramatic change in their attitude. Don't forget to reward them for success, though.

Consider a shortened or extended workweek, flextime, or better yet — work-at-home programs. On average, people who work at home are 40% more productive, and they're happier.

4. Slow Down Cash Going Out

Inventory and payables represent significant uses of cash. Inadequate controls can cost your company a bundle.

If you let your inventory grow from 30 to 60 days' supply, you'll have less cash available for your own bills because you'll have used it to pay for stuff sitting on shelves. If you can reduce the level you carry, through better tracking and controls, you can put cash back in your pocket.

As thought-starters, here are a few more inventory-related cash flow ideas: have your customers supply raw materials, monitor inventory defects which inflate inventory costs, and monitor inventory levels item by item. While you're at it, investigate just-in-time inventory options, supplier floor-plan financing, or consignment alternatives.

Properly managed accounts payable can free up cash, too, by slowing down the money going out. If a supplier offers you extended payment terms, they're actually providing you unsecured, interest-free financing.

Because suppliers have a stake in your survival, they'll often work out special payment terms if you can show them it's in their interest to do so (such as keeping you as a customer). They'll extend you credit when no one else will, they won't require collateral, and they won't want to see your business plan or tax returns. During periods of growth and during tough times, good relationships with trade creditors can make or break your business.

Here are some creative ideas you might try as bargaining chips to negotiate longer payment terms: agree to buy exclusively from a single vendor for some period; agree to pay a higher price for longer payment terms; create a long term interest-bearing note for your balance due, while you pay for new goods on standard terms; offer to take new inventory on consignment and pay as part of the selling price when sold.

Don't alienate your suppliers by stringing them along unnecessarily, but don't look a gift-horse in the mouth either. One company's aged account receivable is another company's improved cash flow.

Remember that the door swings both ways. If you happen to be flush with cash at a time when your supplier is cash-tight, you'll improve your relationship if you speed up your payments a bit to help them out.

Besides, taking trade discounts and paying quicker can represent big savings for you. If your supplier offers a 2% discount on invoices paid within 10 days versus their standard 30-day no interest terms, and you can borrow at anything less than 37.2% (and that shouldn't be too hard these days), you'll actually make money even if you have to borrow the needed funds to take advantage of the discount.

5. Punt

As Arthur Clarke put it, "The future ain't what it used to be." You may have to make some wholesale changes in the way you do business if today's situation isn't what you expected. Consider diversifying to find other sources of revenue, or narrow your focus and target a niche market. Develop alliances with suppliers, customers, even competitors. Be creative! If all that doesn't work, decide sooner than later what you're going to do about it.

In the end, it's all about cash coming in and cash going out. Cash flow.

There are those who manage it, those who watch it, and those who wonder what the heck it is. Which are you?