In a time of slow sales growth, cash flow is a troubling issue for many companies. In fact, 47% of small business owners have experienced cash flow problems over the last 90 days, according to a survey from the Discover Small Business Watch.
What to do? The obvious answer is scouring expenses by looking at the usual suspects, such as salaries and benefits, as well as shipping and marketing costs. But, doing so without considering the strategic implications of your actions can lead to even worse problems down the line, according to Joe Abraham, a small- business expert in Chicago. “You have to consider what impact your tactical decisions will have over the long haul,” he says. “With the wrong short-term emergency steps, you can shoot yourself in the foot.” For example, if you cut payroll too deeply, you run the risk of hurting morale, productivity—and your reputation.
The key, according to Abraham, is ensuring the measures you take fit a longer-term strategy with staying power. He points to a Chicago-based financial planner as a case in point. Because the man often saw clients at meetings held over lunch or dinner, he recently realized his meals and entertainment costs were too high. At the same time, he didn’t want to stop taking clients out altogether—or to create the wrong impression. “He feared he could raise some red flags for clients, who had grown accustomed to these meetings,” says Abraham.
But, as he thought it over, the planner began to see the merit in permanently changing his approach to meetings. When, after checking in with some clients, he discovered they didn’t really care about the meals, he decided to change his m.o. Instead of arranging to get together over lunch at a fancy restaurant , he started inviting clients for a mid-morning or afternoon confab at a local coffee house. As a result, he increased his cash flow significantly—and he plans to continue the practice even after the economy improves.
Ultimately, it’s all about your brand. “It shouldn’t conflict with any financial decisions you make,” says Abraham. That means stepping back and pinpointing exactly what your company is all about.. How do you represent your business in the marketplace? What do you stand for? With that in mind, you can develop ways to improve cash flow that actually strengthen your position in the market.
Abraham recently worked with the Houston-based maker of nutritional supplements selling its product to chiropractors, naturopaths and other healthcare providers. Before the downturn, says Abraham, “the product was flying off their shelves.” But, as the economy declined, consumers started cutting back on their purchases and the company’s customers slowed down their orders. Suddenly, the business was faced with a cash flow crunch.
When the firm’s managers considered what to do, however, they thought over what their business fundamentally was all about. The answer, they realized, was to serve the interests of healthcare providers. Rather than institute major cuts, the company decided to survey their customers to find out what other needs they might have. In the process, they discovered what Abraham calls “a gaping hole” in marketing savvy.
The result: The company started offering marketing workshops, for a small fee. Almost immediately, the sessions were a hit. “Even though supplement sales were down, revenue from the workshops shot up,” he says. They plan to make the seminars an ongoing part of the business.. “They see it as a sustainable strategy for improving cash flow and generating a new revenue stream,” says Abraham.
By analyzing your brand, you can come up with ways to address costs even in seemingly dire situations. Recently, according to Abraham, the owner of a New York restaurant faced a crisis when his bank froze his line of credit while he was in the middle of a major renovation. Instead of laying off employees, most of whom had worked for the restaurant for many years, he decided to take a different tack. He realized his restaurant’s brand—delivering top-notch service and cuisine--had attracted a loyal clientele. So, he approached his customers, offering them something he hoped they couldn’t refuse: membership giving them long-term discounts if they helped with the renovation cost. In a few days, he raised $40,000. Says Abraham: “His customers were happy to rally to his side.”