Improving Cash Flow Can Improve Value

The level of cash flow in your business is an important indicator of how healthy it is. Free cash flow, more precisely, is the money left over in a company after paying off expenses, including investments. It can indicate how profitable your company is, or how enough or little your business makes to cover expenses and be utilized to grow the company.

In an article in Entrepreneur.com, Brad Sugars, founder of ActionCOACH, a business coaching franchise based in Las Vegas, NV, and author of 14 business books including The Business Coach, Instant Cashflow, Successful Franchising, and Billionaire in Training, shares some tips on how to how to keep cash flowing consistently into your business.

1. Know your expenses.

You may think that providing a discount is a logical offer to improve the volume of purchases, and attract new customers, but discounting can actually hurt your business. By selling a discounted price, you could be selling at a loss. It is therefore important to know what you paid for the product or service you are selling, or your overall cost basis. From this, determine how much you should ideally charge, the cost of your offer, and the profit margins on your product or service. This should give you an idea on the effect of the discount you have applied – breaking even or operating at a loss?

Ideally, discounting is not recommended.

2. Bundle your products and services.

Consumers find value in products or services that are bundled together and priced as one. Consider the purchase of a new laptop or desktop computer: rarely will you buy the hardware alone. Commonly, the physical unit is already equipped with the necessary software to run it, as well as a service warranty that usually runs for a year in case of any software malfunction.

This provides the customer value in that in the next 12 months, the computer repair is “free,” thus limiting out-of-pocket costs.

3. Create a back-end product or service.

If your initial product is not profitable, strategize on how to increase the price for back-end products or services. For instance, the first three hours in a karaoke room may be included in the entrance fee, but every hour in excess of that will have a corresponding higher charge. Or an accounting firm can lower the cost of their consultation fee for a chance to service your business’s other accounting needs such as payroll and financial statement preparation.

4. Encourage repeat business.

Loyal customers are integral in keeping the company’s cash flow, profit, and growth healthy. That’s why it is important to encourage your customers to keep going back to your business regularly and more frequently. Offer loyalty programs, VIP offers, and other frequent-shopper programs that your customers can benefit from on their succeeding visits. These include rewards points which they can use to purchase products/services; a free gift with purchase; raffle promo for a minimum or every amount spent; or an applicable discount on the 2nd or nth item bought. Cover the cost of the freebie with your excess inventory or with low-cost, but valuable add-ons.

5. Pre-sell products or services.

To encourage sales sooner, pre-sell your products or services to consumers. Offer them the convenience of the pre-selling practice where they can plan for the future and get a head start on shopping. This is commonly done for anticipated new products/services, or for those that continue to be in high demand and so are difficult to keep in stock for a long time.

Cash flow is one of the more important aspects of the business that can significantly affect the economic value of the business. Through a business valuation, cash flow can be assessed in relation to the other areas in the business, and make recommendations based on the analysis to improve it.

eBusinessAppraisals.com provides professional, third-party business valuation services designed to maximize the value of businesses, and meet the exit strategy objectives of its owners. We have more than two decades of advising and deal-making experience in middle-market businesses.

For a free value assessment of your business, contact us. Offer is for a limited time only.

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