There are numerous cash flow ideas, but here are ten to help you get started and generate cash flow while generating a customer list that will serve as a foundation for repeat business.
- Become a marketing genius: Marketing is married to selling. Marketing is by far the most important ingredient in success. Most accountants will show you that marketing and advertising fall into the expense side on the balance sheet and when you are signing cheques, it certainly feels like that. Yet, when it’s done effectively, marketing is your greatest asset. If you were to run a R10 000 advert that returned you R20 000 in profit in a matter of weeks, then you’d be doubling your money. Marketing is only an expense when it’s done incorrectly. It is wise to spend 50% of your time in this area of the business.
- Primary service or product: One of the easiest ways to boost cash flow and profit is to drive your customers to your bestselling (or primary) product or service with the highest profit margin. Don’t focus on the price, relentlessly sell the benefits.
- Deposits or pre-paid contracts: If you are in a service business, reasonable deposits are a great way to generate cash flow upfront. However, you need to deliver on the back end, or else you won’t be in business for very long. If you have a product-based business, you could also do the same with pre-orders, with a percentage of the final sales price going to secure the order or a certain delivered-by date. The key here is to get creative, as there are endless possibilities in making this model work for you.
- Periodic “closed-door sales” for new customers or loyal customers: This is a great way to literally create a captive audience for your product or service. Set it up as a workshop, class or demonstration in an environment you can control and with a sales and pricing process you can direct. For this event, “sale” doesn’t need to mean “discount.” Offering an exclusive, limited-time purchasing period for new customers (and in the future for loyal customers) is an incentive for them to get the latest, greatest, best or most innovative products before everyone else.
- Shorter payment windows: Depending on your company, you could combine upfront payments with shorter terms, especially if you are in a service category. It’s best to position the shorter terms as an offer with something to act as an incentive for paying early like a small gift or some other kind of added-value offer. You could also position this as both a thank you and an incentive to keep customers consistent with shortened terms.
- Loyalty programmes price: Establish a loyalty programme and add enough value so you can charge a nominal joining fee. While there may be some initial costs upfront for producing loyalty cards or customer tracking, the extra cash generated over time ends up going straight to the bottom line. Not only can you create a highly targeted list of better qualified customers, but this is a simple way to easily generate cash quickly just by asking for it.
- Carry exclusive lines: By stocking items that can’t be purchased elsewhere you can charge higher than normal prices. The advantage – your customers can’t shop around. This is a great way to avoid C and D-grade customers that generally cost you money instead of making you money. Use the uniqueness of your product as a selling tool. People love to have something others don’t.
- Offer big customers a shareholding: If a customer gives you the majority of your business, it makes perfect sense to make sure you never lose their business. Once you have your best customers as shareholders, they will always buy from you and they will probably insist all their friends and contacts do too.
- Stop discounting: This means that your sales will return the highest possible profit margins. Rather offer additional incentives such as free home delivery to assist in closing the sale. Focus on the benefits and quality of your product and not the price. Don’t be afraid to lose the sale.
- Commission only sales team. One of the greatest burdens on any business’ cash flow is sales teams. The safest way to run a business is to pay on performance; but the commission needs to be compelling. It’s also a great way to test people as they usually leave voluntarily if they don’t perform.
Once you get your company up and running, you can expand on these strategies and also look to increase your value adds at different buying, sales or customer contact points along the way. The key is to test and measure what works and what doesn’t, because no strategy will work perfectly for you every time. If you market correctly and test and measure everything you do, keeping your winners and killing your losers, you will eventually find your cash flow “sweet spot.” That will lead to larger increased cash flow, larger profits and a healthier, more successful business over time.
How You Can Make Your Unit Trusts Work For You
How investing in unit trusts can help you build your nest egg while remaining focused on your business.
What should be an investor’s strategy when it comes to unit trusts?
A financial plan starts with clearly defining your objectives. It’s easier to get what you need when you know what you want. Unit trust funds are regulated investment vehicles that can meet the full range of investor needs. Once you know how long you want to invest, it becomes possible to narrow down to the appropriate set of options.
The key thing to get right is to take the level of risk appropriate to your needs. Taking on too much risk means that you may have less capital than expected when you need it. However, too little risk and you will eventually end up with much less capital than was possible. Generally, investors are well served with an investment in multi-asset funds (also called balanced funds) with a suitable risk budget.
These funds are diversified across all the asset classes and require less ongoing decision-making from the investor’s point of view and can be more responsive to a changing environment. This allows you to focus on building your business and getting on with your life while your nest egg accumulates over time.
South African investors are privileged to enjoy access to a vast number of unit trust funds, easily accessible via various investment platforms. The law of unintended consequences, however, can cause investors without a proper investment strategy to use inappropriate funds to address their needs. To ensure that a investor selects a suitable unit trust fund, the investment strategy should focus on the term of the investment, appetite for risk, as well as the possible future investment withdrawal requirements.
This could provide the investor with insight into the type of funds to include in the portfolio to ensure a desired future outcome. Investors must gain insight into the mandate of the funds considered, to ensure that the fund strategy is aligned with the investment strategy.
Dr Vladimir Nedeljkovic:
Investors today are exposed to a bewildering choice of unit trusts and other investment vehicles (ETFs, hedge funds, linked policies etc.), utilising different investment approaches (single manager, multi-manager, active, passive, smart beta…), and investing in various asset classes (equities, bonds, property, multi-asset/balanced). For non-professional investors, this choice may potentially prove paralysing.
One way to deal with this ‘paradox of choice’ (an observation that more choice often leads to sub-optimal decisions) is to focus not on the funds themselves, but on the actual needs motivating the investments. Every investor should, inter alia, reflect on the following questions: What am I investing for (a holiday, a car, my children’s education, retirement)? When will I need the money (is my investment horizon one year, five years, twenty years and so on)? How sensitive am I to investment losses (what is my risk profile? Am I prepared to risk ups and downs in my current investment returns for the potential higher returns in the future)? Only after answering these questions can the process of selecting the appropriate investment vehicles and strategies start.
Related: Equity or Property Unit Trusts?
How does this differ from other investment vehicles?
Each investment vehicle is associated with a unique set of rules. Before investing in any investment vehicle, it is important to understand the rules of the product. What stands out about a unit trust investment is the fact that the product is open-ended and that investors have access to their capital. In contrast to retirement investment products, no asset allocation restrictions apply, which makes the investment vehicle appropriate to address a vast number of investor needs.
Investor strategy is not defined by the vehicle used to implement the plan but by your needs. The primary benefits of investing in unit trusts over other options relate to transparency, investor-focused regulation and liquidity. All the fund managers offering unit trusts have to disclose detailed information about funds in a standardised and comparable format (think objectives, risks, approach, fees and past performance).
This information is always just a Google search away for all funds. Unit trust managers have a statutory duty to act with skill, care and diligence in the interests of their investors. If you want to change providers, you can do so at will, with your money back in your bank account in a couple of days, in nearly all cases without incurring direct exit or switching costs.
Collective investment schemes (CIS) are investment products allowing multiple investors to pool their money into single portfolios. Long-only, standard unit trusts were the first CISs to be offered to investors in South Africa (today there are other collective investment schemes available, such as Exchange Traded Funds (ETFs), hedge funds, and so on). With collective investment schemes, each investor has a proportional stake in the CIS portfolio, based on his or her contributions. They are, therefore, suitable for investors who do not have the time, money or expertise to make direct investments into the market.
What research should an investor do before choosing the right unit trust investment for their investment goals and risk appetite?
When selecting their investments, investors often try to time the market and focus only on the funds with the best recent performance. This can lead to overall suboptimal investment performance. Research shows that due to reversion to mean, the best performing funds over one period are more likely to underperform over the next one. In contrast, investors should start with defining their desired investment outcomes (discretionary or compulsory, time horizon, return targets, risk appetite) and, in conjunction with a financial advisor, select the fund managers and funds that have the highest chance of satisfying those outcomes.
The textbook answer will be to define an investment strategy and then to evaluate the different implementation options by researching the 5Ps (philosophy, process, people, performance and price). This can be a tedious and time-consuming task, so many investors choose to delegate this decision to an advisor. Others short-hand the process by relying on well-known managers with a proven investment track record or alternatively to have no manager at all and putting their faith in the efficiency of markets by investing in a passive fund.
The key issue is finding a partner that you can trust to look after your interests in what is in essence a multi-decade undertaking with an uncertain outcome. As an aside, the debate between active and passive managers is fairly noisy and very public. It is important that you have a good filter to interpret the information you find online. Active managers try to beat the market, while passive managers attempt to replicate the market return. Both sides will point to the power of compounding to support their case. A difference of just more than 1% in the rate of return achieved can add up to 50% to the value of your capital at retirement. Passive managers will emphasise price as the key evaluation metric, while active managers will emphasise value (defined as the after-fee return received by the investor). At Coronation, we have a high conviction level that value will continue to trump price over the long term.
Related: The Truth About Unit Trusts
As a starting point, it is important to gain insight into the investment philosophy of the management team of the funds considered. Investors must understand the objectives of the funds. This would definitely require them to do some research on the fund manager considered. There are a number of risk measures that can be analysed. Be careful to not focus only on the ‘winners’ as historic performance is not always a true reflection of possible future outcomes. Spend some time to understand your own investor behaviour, specifically focusing on your tolerance for volatility, and your need for a certain outcome. Once you have done this, you will be one step closer to knowing which type of fund would suit your needs.
What should investors with a low appetite for risk consider?
In general, such investors should consider money market funds or balanced funds with a lower percentage of equity holdings.
The most important question you should ask yourself is whether your risk appetite (your willingness to take risk) is aligned with your ability to take risk. If your investment portfolio is more conservative than is necessary, you are likely to incur a significant opportunity cost in the form of foregone returns. Investors who need both income and growth from their investment portfolio (i.e. most retirees) and investors wanting to fund near-term or medium-term commitments are the investors who typically face the most significant risk constraints.
Retirees need balanced portfolios with some form of downside protection against extreme market events, which would typically be described as medium or low equity balanced funds in the unit trust context. Investors with near-term objectives should consider managed income funds.
I am always tempted to have a conversation with risk-averse investors about the fact that shying away from assets perceived to be risky can actually cause them to increase the risk of not reaching their long-term goals. This is especially true after taking into account the effect of taxation and inflation. However, I have respect for the fact that not all investors feel it necessary to take on risk in an effort to generate additional alpha in their portfolio.
This type of investor will benefit from funds with a low-risk classification, consisting mainly of interest-bearing instruments. Care must be taken, even within the funds classified as low-risk, as there are instances where short-term shocks are still experienced within some of these funds, especially in the case of rapidly increasing interest rates.
What should investors with a high appetite for risk consider?
Be mindful of the investment term. I cannot emphasise this enough. Short-term investments should not include assets associated with volatility. If you have a high appetite for risk, give your investment portfolio sufficient time to digest the fluctuations in the value that can occur from time to time. In addition to this, I would also encourage investors to be mindful of the fact that the stock market is not a place in which we play with money. It requires knowledge, patience, and an ability to distinguish between the noise that occurs in the market from time to time and facts that actually play a role in the valuations of shares. Having a high appetite for risk is sometimes your biggest asset, but it can quickly turn into a liability if not managed correctly.
Take enough risk, ensure you diversify across local and international assets and stay the course despite temporary disappointment with investment outcomes. The past few years have been unusual, as equity markets delivered lower returns than expected. Losing faith in shares would be the wrong lesson to draw from this. Periods of weaker return typically coincide with fundamentals that are supportive of better future returns. Those that remain committed tend to do better over time as it is notoriously difficult to time markets. Also make sure that you maximise the tax breaks available to investors. Use your R33 000 annual tax-free investor allowance to invest in long-term growth funds, which will be described as high equity or flexible multi-asset funds.
Vladimir: Investors with a high-risk appetite tend to focus on equity funds, high equity balanced funds, as well as flexible funds and funds providing offshore exposure, depending on their circumstances. Such investors might start looking further afield, into RIHFs (retail investor hedge funds) and similar vehicles.
How much of an investor’s portfolio should typically be in unit trusts and why?
This depends on circumstances. Unit trusts are suitable as the sole investment structure for that portion of your balance sheet invested in listed assets. While entrepreneurs will always be tempted to go all-in to support their business ventures, it makes sense to diversify risk into a more diversified portfolio of investments. Creditor protection is also an important consideration. Holding your unit trusts via a retirement annuity fund may be a suitable response to this risk management need.
This is difficult to answer without having a full picture of the circumstances of the investor, but that percentage is likely to be high, if one combines direct discretionary investment into the unit trusts with the indirect exposure via retirement vehicles.
This information is not advice, as defined in the Financial Advisory and Intermediary Services Act 37 of 2002. Collective investment schemes (unit trusts) are generally medium to long-term investments. The value of participatory interests (units) or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. The Managers do not provide any guarantee, either with respect to the capital or the return of a portfolio. Different classes of participatory interests may apply to portfolios and are subject to different fees and charges. Any forecasts and/or commentary in this document are not guaranteed to occur.
7 Things Every Entrepreneur Should Know About Managing Cash In The Business
Every entrepreneur needs to know how to prepare for cash, manage it effectively and mitigate fraud.
Cash is complicated. It can’t be tracked properly, it opens up avenues for fraud, it gets stolen, and it is difficult to manage. It’s also an unfortunate reality that, in South Africa, cash payments and transactions are both inevitable and essential. So how can the entrepreneur overcome the challenges of handling cash? Here are seven ways…
There are many ways to manage payments in the market today. You can Snapscan, you can Zapper, you can EFT and you can use an app to send money from a wallet to a mobile number. The problem is that none of these options recognise the fact that cash is still the leading method of payment in most markets. So, to really accommodate cash, the entrepreneur needs to look to digital solutions.
You can still physically collect cash, but digitise the transactional information so that you can easily identify the transaction and reconcile the cash collector.
2. Protect the consumer
Ensuring that every cash transaction is tracked digitally means that you are protecting the consumer if the cash or transaction are lost. There is always the question – how can you service your customers post-payment without proof on your side? Ensure that your cash transactions are audited and accounted for to ensure you can recon accurately.
3. Don’t be a target
High collection points – those points where a lot of cash is collected and held – tend to become targets. Try to avoid putting your business in line of sight by using tools that can either limit the use of high collection points or that can alert the relevant security authorities if a theft occurs. Again, it comes down to digital tools to monitor, track and alert the right people at the right time.
4. Teach your customers
It’s one thing to invest into a bevy of tools and services to protect your transactions and consumers, another to let consumers make any number of silly mistakes. Teach your customers about fraud, potential risks, things to look out for and trust. They shouldn’t hand over their cash without the collector using the right tools or app and should be wary of any transaction that doesn’t have these protections built in.
5. Test and adapt
Invariably, those who want to commit fraud are equally committed to doing so. They will find loopholes and gaps that allow them to take advantage of you and your customers. Your best bet is to constantly test and adapt your systems, to build metrics in-house that measure inconsistencies and report back on any issues.
People are very creative and will find a way of helping themselves to cash that isn’t theirs.
Cash is expensive to manage so find ways of negotiating better deals with banks so you get the best fees. Cash-in-transit is expensive, but often necessary when it comes to large cash deposits.
7. Invest in a payment solution
Digital payment solutions aren’t always possible, but try to employ one that is easy to use and that can be gradually introduced to your customers. Adoption may be slow – it can take years to achieve low cash/high digital payments – but it will benefit you and your business in the long term.
5 Cash Management Tactics Small Businesses Use To Become Bigger Businesses
Reaching your highest potential as a business owner depends on maintaining positive cash flow.
You may have heard the phrase “Cash flow is the blood that keeps a business alive.” This couldn’t be truer, as consistent positive cash flow can help a business owner pay expenses, invest in new opportunities or grow a business.
Fortunately, as small-business-owner optimism remains high, most owners expect a healthy cash flow this year. The January 2018 Wells Fargo/Gallup Small Business Index found 77 percent of small-business owners rated their company’s cash flow as very good or somewhat good over the past 12 months, up from 73 percent in November 2017.
To help with managing cash flow, here are five tips you should consider:
1. Spread out your payments
Paying all your business bills at the same time rather than spreading them out can drain your disposable income and leave you at risk of not being able to pay your creditors and suppliers if an unexpected expense occurs.
Instead, try paying your bills closer to the due dates and negotiate with your vendors to see if you can extend your payables to 60 or 90 days.
Also, be sure to pay your most important bills, such as rent and payroll, before paying less important bills.
Check with your vendor to see if you can receive discounts for paying any bills early. Remember to pay all your bills before the due date to maintain a good credit standing.
2. Collect payments quickly
Another way to improve cash flow is to incentivise customers to pay early by offering discounts.
Other techniques for collecting payments quickly include requiring deposits from your customers when taking orders and offering online payment options.
Thanks to advancements in technology, there are multiple ways for your customers to complete quick and efficient transactions with your business. One example is electronic billing, which allows for you to customize invoices and set up automatic payment reminders for customers.
3. Establish a strict credit policy
It’s important to be wise about extending credit as a business. A non-paying customer can be a hefty expense to a small-business owner.
Establish a written set of standards for determining who is eligible for credit, and enforce those standards rigidly.
Also, be sure to require a credit check for all new customers before extending credit and monitor your accounts to identify late payers early so you can offer them a variety of payment options. These options might include a credit card charge or a payment plan.
4. Align your payroll cycle with your revenue stream
Some businesses, such as restaurants and retailers, generate daily revenue and can more easily cover the expense needed for weekly payroll.
For others, such as manufacturers, this could be a challenge, and you may benefit from paying employees less frequently, provided applicable wage laws allow you to do so. Refer to your state Department of Labor for pay frequency information.
5. Plan ahead for cash shortages
Expect the unexpected. Typically cash flow will vary, and unexpected expenses will occur even for established businesses.
Keeping a rainy day fund with three to six months of basic operating expenses in a reserve can prepare you for slow periods and emergencies.
Another option is to use a business credit card or business line of credit to pay for everyday expenses and help bridge gaps in cash flow. Be sure to monitor your expenses with online banking and monthly statements.
Related: How Amazon Is Keeping It Lean
One important tool for planning ahead is a cash flow forecast, usually a one-year prediction of how cash will move in and out of the business. This helps business owners evaluate how profitable future sales will be, and provides an overview of what needs to be done to reach your goals.
In its simplest form, a cash flow forecast should show where cash balances will be at certain points in the future so you can anticipate and prevent cash shortages. To get started, organize your payables and receivables on a spreadsheet to see where money is coming and going.
Ultimately, reaching your highest potential as a business owner and being able to serve your customers effectively depends on maintaining positive cash flow. Following the tips above may help keep your business financially strong and position your company for success.
This article was originally posted here on Entrepreneur.com.
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