There is very little that you can count on in business. But one thing is universally true — banks and investors are the most interested in giving capital to the businesses that need it the least. Given this universal truth, how can small businesses get the capital that they need to operate and grow? It may be time to open your mind to creative cash flow methods that can infuse your business with the money that you need when you need it.
Leverage Your Customers
One way to achieve financial fitness is by practicing what I call “cash flow yoga.” Simply put, you need to find ways to take cash in quickly, while letting it out slowly. Rather than making your products or deliveries up-front and then chasing down payment, why not flip that traditional formula on its head? Move to a system where you pre-sell and then, fulfill product orders. Or, if you sell services, ask your customers to reserve your time with an upfront deposit.
Pre-selling definitely improves your cash flow, helps you save time chasing down payments and helps to filter out deadbeats. Moreover, it also teaches you a great deal about the popularity of your products, so that you know what and how much to produce — and what products to abandon.
If you think that customers will not welcome this approach, the right marketing can transform this strategy into a selling point. For example, I advised a woman selling organic cosmetics that using a “made to order” messaging would keep her from having to retain inventory and allow her to take payments, make the products and then, deliver them.
Just be sure to know the laws about deposits in your jurisdictions, so that you know how long you have to deliver while being compliant.
Embrace Gift Cards
One major gift card vendor reports that consumers spend over $100 billion in gift cards each year. And 72 percent of gift card holders spend more than the value on their cards. But you do not have to be in the retail industry to benefit in this way. Many businesses can boost their up-front cash by issuing gift cards or certificates.
Gift cards and certificates provide a win-win for you and your customers. If you run a time-sensitive business like a tax accounting firm, pre-paid clients know that they lock in the knowledgeable support that they need during the busy tax season — and if you combine the pre-pay strategy with a discount, even save money by paying upfront. Not only does it provide a cash infusion into your business, you can better anticipate your future workload, so that you can plan resources effectively.
Before you start making these offers, however, you need to keep two important caveats in mind. First, you need to review state and local laws to make sure that your strategy works for your business. Additionally, pre-payments require different bookkeeping practices. When you sell gift cards, they represent liabilities to your business. Once you deliver the products or services, they become revenues.
“Kick Start” Some Cash
You may not know the term, “crowdfunding,” but you probably recognize the name Kickstarter, which is one of the most popular sites used by people looking for financial “backers” for their new projects and products. Although there have been recent legislation changes around crowdfunding equity, there are many crowdsourcing platforms that allow you to seek contributions in exchange for providing perks and benefits to your sponsors. For example, a $100 sponsor for your flying widget might receive a widget once they are produced. $250 sponsors might also see their names on the packaging.
If you need additional cash to bring a product to market, crowdsourcing sites like Kickstarter and Indiegogo may be the right solution. But, unless you get enough pledges, you will not obtain the funding you need, so you need to actively promote your listing. Too many entrepreneurs think that if they build it or list it, that sponsors will just line up. This isn’t the case- you need to take an active role to make sure that your project is fully funded. Get your friends and family involved in your project, and then make liberal use of Twitter, Facebook and other social media to let the world know where to go to learn more and sponsor your project.
Also, the more excitement you create, the more involved your sponsors become. Consider fun and informative videos, creative perks and fun descriptions that create engagement. If you do it right, you may get more than money- sponsors may even make suggestions on how to improve on your original concept or share new product benefits that will improve your marketing. The advantage is that small business owners can gain financial and collaborative benefits from their sponsors without giving up ownership in their companies.
Banks aren’t always waiting in the wings to help fund small businesses, but that’s no reason to throw in the towel. Your entrepreneurial spirit and some out-of-the-box thinking can go a long way to help supplement your cash.