If your business urgently needs more money, what’s the quickest way to get more cash?
Assuming you have enough personal capital, you could always loan the money to your business. But let’s exclude financing and investing activities like borrowing money or liquidating non-essential assets. What would be the quickest way to free up more operating cash?
Many business owners react to a cash crisis by cutting costs or offering generous discounts as part of a sales promotion, but neither tactic is likely to generate a great deal of money immediately.
The long term accumulation of cost cutting gains can work out to be very significant, but the short term benefits aren’t likely to be particularly impressive (unless you have allowed absurd inefficiencies to creep into your operating cost structure).
Similarly, a discount promotion might boost your sales, but the concessions responsible for the short term surge will compromise your margins and cannibalise your cash inflows (which will be further delayed if you allow your customers to purchase on account).
So what other options are there?
One of the quickest ways to free up a lot of operating cash quickly is by optimising your working capital accounts. Many business owners have a lot of hidden cash tied up in working capital due to poor cash flow management. They are usually so obsessed with growth that they aren’t aware that their debtors book has ballooned or that excessive inventory is stockpiling in their warehouse.
The cash that you can extract from your working capital is limited only by your imagination. One obvious tactic is offering your customers a nominal discount for settling their accounts sooner (coupons can work even better, since they incentivise future purchases in addition to early settlement).
Clearance sales are another popular option for converting obsolete stock into cash (I recommend insisting on cash purchases when organising clearance sales to get maximum value out of your concessions). You may be surprised by how much cash is hiding in your business. But to discover it, you’ll need to look at your cash flow statement instead of obsessing over your income statement.
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