Keeping steady cash flow
Cash flow fluctuations can be unsettling for any business. And while there may be occasional unpredictable variables that require rapid response, a cyclical business has no excuse for being surprised by poor cash flow.
In almost every business dealing with seasonal services and products, there are numerous creative ways to stabilize (and even boost) cash flow throughout the year.
Here are two quick examples:
In one of my previous businesses, cash flow was seasonal, to say the least. This company was a landscape design-and-construction firm that serviced high-end residential and estate properties. By 1996 we were successful in instituting various methods to stabilize cash flow throughout the year in most divisions, but the main destabilizing force (our grounds management division) remained unchecked.
The common practice in the industry was either a month-to-month contract or a nine-month contract covering the usual growing season in the Northeast. But I decided to break free from the pack. What we did was extend our agreement to include, among other things, a 12-month payment schedule.
Making this one simple shift had three positive impacts on cash flow.
1. Our "seasonal" cash flow was now evenly distributed over 12 months, making budgeting a comparative breeze.
2. We had the opportunity to add a number of "premium" services that were performed during the winter. This simultaneously served our clients' needs, kept more employees working and increased our annual agreement totals an average of 15 percent to 18 percent.
3. Since contracts were now 12 month agreements and clients were "conditioned" to make their monthly payments all year long, our renewal rates ran in the range of 94 percent to 97 percent with steady annual increases.
In a retail business? Here's an example of woman who owns a high-end gift store that was able to transform her business from a "holiday only stop" into a year-round cash flow machine.
Here is what we did: First, we gathered all her current client information into a database. Next, we went straight to her market, completed surveys with her top clients and found what those leading clients wanted most. Almost every client she spoke with was overwhelmed with day-to-day activities. They just didn't have time to keep keep up with friends and loved ones who required gifts.
We developed a system where her clients could sign up for a "year-round" gift registry, and pay a monthly fee to have all their gifts automatically taken care of for the year. With three levels to choose from, the majority of her long-term clients immediately signed up for the service.
This business owner created solid monthly cash flow in a retail business that typically just took its lumps and borrowed money to get through the slow times of the year. Now that we added three other profit centers, in addition to this one, her cash flow now is not only steady, but profits are growing 20 percent to 25 percent per year.
Stop thinking like the pack and start thinking like your clients and you'll find the answers to your cash-flow blues.
John-Paul Micek is the lead business strategist and chief operating officer of RPM Success Group. Reach him at JPM@RPMsuccess.com
or (888) 334-8151.
Deborah Cole Micek, chief executive officer
of RPM Success Group, is a business success coach
and life strategist. Reach her at DCM@RPMsuccess.com
or (888) 334-8151.