Increase Your Prices
Many small businesses are hesitant to increase their prices on products, afraid that customers will get angry and go elsewhere. However, if it's been a while since you've raised prices, this is something you should strongly consider doing. Here's why:
- Your competitors are probably raising their prices. Your small business is missing out on revenue while your competitors are getting stronger as they are probably taking those extra funds to improve their business' processes and/or innovate new services or products.
- The prices on the supplies you need or equipment you need have risen. Odds are, if you've been in business for any length of time, the prices of the necessary items you need have risen. As a small business, this means you either take the hit to your profit margin if you stay the same pricing, or you pass this along to your customers.
- Your employees received raises. This is the same logic as when the price of your supplies increased. You can either reward your employees for a job well done out of the bottom line, or you can conclude that your customers are getting amazing customer service, which has now gone up in price.
- You are innovating new, life-changing products and services. As a company who develops new products that will help improve people's lives, these are costs that can be passed on to those customers.
- Your products may be considered cheap. In consumers' minds, the lower cost item is usually the lower value item as well. It's the difference between buying the name-brand item versus the generic-brand item. People associate quality with the name-brand items, and if your prices are too low, they may subconsciously choose the higher-priced item anyways, equating your product with poor quality.
The Hedaya Capital Group in New York advocates that you charge what you are worth. Too many people undercut themselves, especially those who are self-employed, and don't give them credit for what they are worth out of fear people won't hire them otherwise. There is definitely a balance between charging a fair price and staying competitive. Yet, you still have to make a fair profit for you and your employees.
This is a time-honored way to increase savings, whether you are a business or an individual. If you need more cash, cut expenses, or the money that is flowing out of your small business. Thus, you'll need to take a hard look at the numbers and see where you can squeeze pennies. This means going through your cash flow statements and expense reports line by line and asking two questions:
- Can we operate without this expense?
- If we can't operate without this expense, is there a less expensive alternative?
If you haven't done this for your small to medium-sized business for a while, you'll probably be surprised at what little expenses have crept in and are now adding up.
Look for Efficiencies
As businesses grow, small inefficiencies can creep in, and they can even become large inefficiencies if left unchecked. Thus, another way to help cut expenses is to streamline your business processes and make them more efficient. This involves looking at ways that your small to medium-sized business is spending its time. This can also entail looking at how your employees are spending their time. Thus, The Hedaya Capital Group in New York recommends that you begin to think outside of the box and bring a new perspective to your operations. Perhaps you could update your software that will do more, saving time with multiple software programs you are currently using. Maybe you can find ways for employees to improve how they spend their time and for ways to avoid overtime, which is a huge, often unnecessary expense.
Another best practice that is good to implement — even if you aren't experiencing cash flow problems — is upgrading your equipment and heavy machinery. With technology the way it is, processes improve all of the time. Perhaps you can now automate a task that you couldn't before, saving on employee wages and expenses. This can also lead to an increase in products produced, which will increase your income and thus your cash flow. Or, the increased efficiency could free up more time to innovate more products.
Sell Off Unnecessary, Outdated Equipment & Inventory
Many businesses, like people, keep items that they think they will need for way too long instead of selling them off (think of your closet at home and what percentage of those clothes you actually wear). Thus, small businesses may be sitting on outdated inventory that they could sell (even at a discount) to improve cash flow. This can be outdated products like when you released a new model, or products that you invested in that are just not all that popular.
The same goes for old equipment that you're holding onto even though you just upgraded to new equipment. The Hedaya Capital Group recommends that, if you are not using a piece of equipment and not selling inventory right now, you sell it. You won't use it in the future.
If you are sitting on antiquated equipment but you don't have the cash to buy new equipment right now, you should consider leasing new equipment. Your payment will most likely be less than if you bought new equipment, and if your processes improve significantly because of it, your cash flow month-over-month could improve significantly. Plus, your lease payments are a business expense, which means you can write these off on your taxes.