Lack of cash is the number one challenge (and cause of stress) for business owners.
Cash funds business growth, pays for advertising, extra employee wages (to free up your own time), and your salary.
The good news is that there are dozens of effective, fast acting strategies to boost the cash in your business bank account.
There are 3 main ways to boost the cash levels in a business…
- Reduce the amount owed to you by clients
- Increase sales and income
- Increase your business’ profitability
In this post you’ll be shown effective strategies to work on for all 3 “types”
1. Reduce What’s Owed to Your Business
These types of strategies are the easiest and fastest to increase the cash in the bank.
These strategies may require a slight mindset or habit change because businesses that are owed a lot of cash have often been “trained” not to pay on time.
For example, an accounting firm client was owed $320,000 by its clients and after a few questions, these points were determined…
* the firm had ‘Terms 30 Days’ on their invoices
* the firm didn’t call to ask for payment at all
* the average time to be paid after issuing invoices was 48 days
Some effective strategies for being paid sooner – used by this clients were…
Shorten invoice terms
If its possible, why have payment terms to delay payments – at all?
In some industries it’s completely optional as to what the terms can be, so if that’s the case, why have payment terms at all?
In some industries, 100% payment is required up front. In others its 50% and 50% upon completion of the work. In others its 100% payment required upon completion of the work on the same day.
Often the choice is available to choose payment terms. Do you have that choice?
Can you make your payment terms 7 days instead of 30 days (for some if not all clients)?
Use the word “Within” on Invoices
On invoices where the payment ‘Term’ is stated, it’s very common to just state the number of days, such as “30 Days”.
When people see “30 Days” it says to them, think about paying this in about a month, and that leads to people putting off paying until after 30 days in some cases.
The better choice of wording is to change the wording to “Terms – Within 30 Days”.
Phone your clients – to train them to pay ontime
Most businesses will phone clients who haven’t paid them, but do so only AFTER their stated invoice payment term.
This means the business is “training” clients not to pay earlier, by only phoning to ask after their payment term number of days!
A better strategy is to phone clients BEFORE day 30 for terms of 30 days, such as day 21 or day 28 – at the latest.
This then TRAINS the client to pay on time, with the reminder that the terms are serious, and not to be ignored.
2. Increase sales and income
This is the area most businesses focus on to increase cash in the bank, however it’s not as powerful as the next one.
A few insights into how to which strategy types to use for this will be discussed first…
Increase Leads by Website “Optimization”
A website is NOT actually “optimized” to produce the highest number of leads, after a website developer has finished their work and handed it over to you.
That’s because website developers are rarely “marketing experts”, who have paid tens of thousands of dollars learning marketing and testing results from their own spending on marketing, not just websites.
There are proven principles of marketing that apply to all forms of marketing and advertising, such as the need to sell benefits.
People buy benefits, not facts and features. Unfortunately 90% of websites are full of facts and/or features with very few benefits.
Benefits are easy to spot because they typically have the word “you” in the sentence. If there’s no use of “you” (you’re or you’ll), then the wording is almost certainly feature or fact focused – i.e. self-promotion focused, not customer-focused.
Changing the wording to simply say – “you’ll enjoy…”, “you’ll receive…” or “you’ll get…” will make that subtle but extremely important step to talk in terms of the benefits of buying from your business.
Another way a website is not “optimized” is with images.
Research over decades has proven, beyond any doubt that the BEST image you can use anywhere is one of happy people.
It’s at least 2 to 20 times more interesting than a landscape, computer, graphic, graph, cartoon or anything else that is typically the first image seen on a website at the top.
A lot of these images have no appeal at all to the people who visit websites and are looking to buy from a service provider.
The image people like to look at most (by far) is of people’s faces.
Do you have an image of happy faces on your home page?
Changing the text to include “you” and images to include happy people’s faces turns your business into a “people-friendly” one, represented through your marketing.
Just by doing so it can “attract” higher quality leads and higher quantities of leads too. Make these changes and see what results you achieve from them.
The improvements can be spectacular!
The next topic to “optimize” your website is to make it “Google friendly”
Google friendly website ingredients
New websites have a long way to go to become very “Google friendly”.
The TITLE of each page is often not correctly chosen, which is a “meta tag” that is like a summary that tells Google what the page is about.
It also contains the keywords that Google needs to know to correctly ‘rank’ the page.
A carefully chosen TITLE can make a big difference to how well a page ranks in Google, so its important to choose wisely.
The TITLE is seen above as the small text, just under the browser tab. You can see it by hovering your mouse over the browser tab.
An electrical contracting business could have a TITLE containing “electrical contractor” or “electricians” or “plumbing” or “plumbers” for a plumbing company’s website or page.
Choosing the best phrase or short sentence for each web page is something you need to do, not your website developer, because you know your customers better than anyone else.
You can use Google Keyword Planner but it’s not a good choice for accurate volumes of keyword searches.
A far better choice is Keywords Everywhere, a (free) browser extension for Chrome that shows search results, for the specific country, after any search in Google in the browser as seen here…
Notice the small figures under the search bar – its shows “Volume 1,900/month”. It also shows the CPC and Competition (for Google Adwords). These figures are the same as Google’s (if you can access them).
Here’s the full screen shot of Keywords Everywhere showing the extra information for similar keywords to make research easier…
This tool makes it super easy to check keyword volumes.
You can install it by going to Chrome, click on the 3 vertical dots on the far right, then ‘More tools’ – Extensions. Do a search for Keywords Everywhere and install it. It will show up as an icon at the end of the search/URL displayed on the right. After its installed, just do a normal Google search and see the results, just like above.
Make sure you set it for your country…
These ingredients of optimization can make a BIG difference to how many leads you generate from your website, so its worth going through the process.
These subject on website optimization are covered in loads of details in our Marketing Fast Track training course.
Increase Sales for Free using Conversion Rate Strategies
This is one of the least focused on areas in all businesses, but one of the best in terms of speed and size of improvement in sales income.
The ‘sales conversion rate’ is the percentage of people you talk to about your services, that actually buy.
If you received 20 inquiries this week about your services and 10 of those inquiries resulted in actual sales then the conversion rate would be 10 out of 20 or 50%.
Knowing your sales conversion rate is the first step to increasing it.
Even if its 70% it can definitely be increased and an increase from 70% to 77% is a 10% increase in annual turnover, which is a huge increase on businesses turning over $500,000 or more.
There are dozens of zero cost to implement strategies as well as a few very low priced ones, to increase conversion rates.
27 years of research has gone into conversion rate strategies by the founder of Profit Transformations, including decades of testing and refinement with over 1,000 businesses on training programs.
The best strategy for increasing sales is to learn (and master) understanding people’s DISC Profile.
Here’s a basic summary of the 4 ‘profiles’ or behaviour preferences of people…
As you can see there are 4 profiles, which every person is a combination of.
Every person has one or sometimes two major focuses on their behaviour and identifying this behaviour during a sales inquiry conversation is super helpful.
Each person’s profile influences greatly how they like to be communicated to from a ‘salesperson’. Keep in mind, to a prospect looking to buy from a company, every person is a ‘salesperson’ as every person they speak to can prevent them from buying from the business or influence them to buy from the business.
Every person in your business needs to learn to identify a caller’s DISC Profile.
Because 3 out of the 4 profiles is annoying to the other one!
People don’t like to buy from people who annoy them – (you know this yourself)!
When you or your team don’t know the prospect’s DISC Profile, it’s very easy to annoy them, preventing a sale.
Learning (and mastering) the skill of identifying a callers DISC Profile in 2 to 30 seconds greatly benefits conversion rates.
Some clients have increased conversion rates (and therefore turnover) by 20% in weeks. Others have increased conversion rates by 300% in one month! (Our record is 367% increase in one month, for a real estate agent).
What sales and cash increase are you missing out on by not knowing all of these strategies? It could be $50,000 or $120,000 more – as it was for some of our clients.
That accounting firm, mentioned near the start of this post, saw a cash in the bank increase of over $220,000 in three months – thanks to the use of the above strategies. The potential for cash in the bank increases is huge for nearly every business, if the right strategies are correctly matched to the business.
The best way to increase cash in the bank in any business is to increase the business’ profitability…
3. Increasing Profitability – the Net Profit Margin
Keeping the annual revenue of a business where it is and focusing on increasing the net profit percentage, or Net Profit Margin (NPM) is the number one way to increase cash in the bank there is.
It’s also the easier, but the opportunities to do so are hidden by ignorance or mindset.
There are a few ways to increase profitability…
The number one way to increase the NPM is to simply raise prices, by ideally 10% on everything.
What very few business owners understand is the ‘math’ of increasing prices, so they can make an informed decision about it.
A simple way to look at it is to consider a $1,000 sale.
The business receives the $1,000 as income for the sale. Out of every individual sale come the Costs of Sale (i.e. labour, materials, subcontractors etc.) and overheads/expenses, such as vehicles, insurances, rent etc.
In a business with a 5% net profit margin, of that $1,000 income received only $50 is left in the bank account. The rest comes out of the sale for costs and expenses.
In a business with a 20% net profit margin, of that $1,000 income received $200 is left in the bank account, after all costs and expenses.
All things being the same, the business with the highest net profit margin will have the most cash in the bank, so it’s vitally important (and very smart) to focus on increasing the net profit margin.
The best way to increase net profit margins is to raise prices.
There are a bunch of assumptions that can get in the way, such as “I’ll lose too many customers if I do that“, “My sales will drop substantially.”
Did you know that inflation is around 3% so if you’re not raising prices by this amount – every year – you’re definitely in need of a price rise?
A 10% price rise does NOT increase a business’ Net Profit by 10%. That’s a myth.
Take a business of $500,000 revenue per year, with a net profit of $50,000.
A 10% price rise (if no sales are lost) would increase the revenue to $550,000.
That $50,000 is 100% pure profit so it would add to the initial net profit of $50,000 to increase it to $100,000, a 100% increase!
If the original net profit was $100,000 then it would add $50,000 to the net profit, so it would be $150,000.
That means you can afford to lose a LOT of sales and income, after a price rise, because your Net Profit is going to be so much higher as a result of the price rise.
If you lost 20% of sales, after the price rise, the revenue would be 20% less on $550,000, so $110,000 less, or $440,000.
The net profit reduction of 20% would take it from $100,000 (in the first example) down to $80,000, which is still $30,000 higher than it was previously.
A 20% drop in sales is huge, and not one that has ever been witnessed from working with over 1,000 business clients, and measuring sales figures accurately before and after a price rise.
Can you see why a price rise isn’t that much of a risk?
Increasing Gross Margins
In a service business, the second best way to increase the NPM is to increase the Gross Margin on jobs.
First, it needs to be measured, with employee costs as a Cost of the Sale to accurately identify the gross margin on every job.
By doing so, and comparing the actual gross margin to the quoted gross margin, when there’s a difference (and there usually is), the reasons for the difference need to be found.
There are 6 to 12 reasons why the quoted gross margin isn’t achieved and identifying these reasons leads to a benefit because you know why and what to do about it in future.
That leads to needing job management software, such as SimPro or Aroflow to name two, for tracking and monitoring times on jobs to see the gross margin achieved.
Most trade service businesses over $1,000,000 can’t function profitably without job management software such as these ones.
Knowing your own business’ figures is super important.
That’s where knowing your figures is essential to manage your business. Without knowing the figures, they are “out of sight and therefore out of mind”.
We don’t focus on increasing anything if we don’t know how well its performing, we don’t give it a thought.
EVERY business can easily and rapidly increase cash in the bank. The best place to start is with measuring – every lead to a sale, every job’s gross margin and every employee’s gross margin too.
But that’s a big subject for another post.
If you’d like to chat with a true professional, super experienced with increasing cash in the bank and Net Profit Margins, book in for a chat with Tim Stokes, the founder of Profit Transformations. It’s free.