Finding the ‘hidden value’ in your businessThese are all physical and measurable assets that you use to operate your business, such as property, machinery, vehicles, furniture, inventory and cash reserves. Here are some of the things you can consider:
- Get rid of stuff collecting dust or simply running you dry – it is likely that you will quickly realise that there are physical assets that are not crucial to the running of your business in the short-medium term or equipment that is costing you more to maintain than the value it delivers at this moment in time. Consider selling or leasing back any such assets in order to free up some fast cash. Reducing overall processes to such that are profitable may also free up some of your floor space which can be subsequently subleased.
- Ask your supplier to lend you a hand – if you are someone with cash-rich suppliers, consider arranging for the consignment of existing stock. This means that they buy back any inventory you currently have in stock but without moving it and allowing you to pay for it only when you use it.
- Keep your sales going – in times of economic turmoil, it will feel like a tough decision to make any price reductions to the products you provide. But rather than holding on to finished goods in anticipation for ‘better times’, consider providing discounts for ‘loyal’ customers. They are likely to welcome the offer while understanding that these prices are for unprecedented times and accept your standard pricing on future sales.
- Dip into your cash reserves – most companies have cash reserves held back for profit tax payments at the end of the financial year. If your yearly income is anticipated to be lower as a result of the current crisis – and taking into account the Government’s deferral of VAT payments – you might not need all the money you have set aside for taxes, but you could release these reserves to support the running of your company in the short term.
Reducing your working capital
- Reduce the complexity of your inventory – when it comes to inventory, it is often the case that 80% of sales is derived from articles constituting only 20% of the inventory. With this in mind, a smart way to extract cash from working capital is to make the most of that 20% while focussing less on the remaining 80%. You can do this by increasing the availability of your most sold items while reducing that of less popular goods. Another way to do this is by increasing the pricing of the less sold items to drive sales towards the more popular ones. It is rarely considered a factor in pricing but low volume goods carry a proportionally higher cost and should be priced accordingly.
- Payment terms: reducing receivables – to reduce accounts receivables, you can lower the DPO (days payment outstanding) on invoices sent to your customers from the standard 30 days to the increasingly common 15 days. For some customers, this can be easily achieved, but for others, you may want to consider offering cash-on-delivery discounts meaning that they will ‘pay less if they pay fast’. You can also offer cash-strained customers to pay your company with a credit card and thereby improving both companies’ working capital.
- Payment terms: increasing payables – when it comes to increasing your own accounts payables, you can ask your supplier to extend your days outstanding. Another option is to pay your invoices with a credit card at maturity, most credit card issuers offer interest-free payment days exceeding 30 days, and allows you to significantly increase your accounts payables. Not all suppliers accept card payments, but payment services like ours can help you out in those scenarios.
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