The Cash Flow Blog

It’s a rational thought — slash prices and buy customers.  Create a volume of business by deeply discounting products and services.  Margins will be low, but what the heck?

To be honest, if the cash flow problem you face is that big, dropping price to drum-up business isn’t an insane idea.  The problem may be shortly after the sale is announced, within 30-45 days.

Here’s the problem:

The smell of death — Nothing says I’m desperate more than a quickly launched sale.  The sale you create may send the message your business is in trouble.  What results may be prospective and existing customers looking elsewhere to purchase whatever it is you sell.

You can’t always make it up in volume — Selling a lot today at a discount may mean your cash flow problem gets worse later as you have less money to buy raw materials or pay next months bills.  Low margin sales contribute to cash flow problems, they don’t fix them.

Escalating sales may create a future void — Dragging sales into this month or quarter can have a negative affect on next month and quarter.  When you escalate purchases, the thought you have to consider is how many are buying now as opposed to later? The concern is you make low margin sales this month and no sales next month.  Bad moves to worse.

Upset customers — There’s nothing that irks me more than learning if I deferred my purchase a day or week, I’d have gotten a big discount — especially if I negotiated the higher price with someone who claimed that was a far as they could go.  You can destroy trust with a customer by selling the same solution at two different prices.  What can result is kissing referrals and repeat purchases goodbye.

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None of the above is to say you shouldn’t offer a sale or promotion to spur sales.  The point is to think through the promotion before you run with the idea.  Here are two things to consider before you move forward.

What are your thoughts and experience offering discounts to boost near-term revenue?

This isn’t for every vendor and customer, but a quick way to pump some money into your business is to discount a receivable.  I’ve done it before — creating a win/win situation where both vendor and customer walk away thinking they got a great deal.

Here’s how it works

Let’s say you have a receivable for a particular client — a term sale you made with payments outstanding.  For this example, let’s say your customer owes you $3000 on a service you provide.  And let’s pretend that payment in full is  due three months form now — $1000 payable each month for three months.

Let’s also pretend your business is in deep need for money.  You have bills to pay and not enough money to pay everyone.

In this example, what you can do is offer to discount the receivable in exchange for immediate payment. An offer might be to escalate payments in exchange for a 15% discount — or greater.  Not everyone will be interested in such an offer, but some will.

The thought is to look at the money you have coming in and think creatively to bring it in faster.

Have you discounted a receivable or escalated payment in exchange for a discount?  If so, was it win/win?  Would you do it again?

Sometimes all you have to do is make a call or send an email.  Just ask, follow-up.  Being there is half the battle.  Often that’s all you need to do to surface a new order — make contact.

When someone buys from you, the first thought that ought to enter your mind is What else may they need?

Often times people buy things from us because they’ve reasoned a need for something.  They acted on their worldview and exercised a purchase.  That’s great!

But often there’s more.

The person making the purchase is somewhat blinded by their worldview — they have a perspective and way of looking at things that led to the decision to make a purchase.  But their way of looking at things may not consider all thoughts, ideas, and angles.

Enter the expert.

You are the expert of what you do.  Don’t under estimate it.  Daily, you live the decision your customer may be making but once in a blue moon. Your perspective of their purchase may result in something different — a greater win/win whereby the buyer gains more from purchasing beyond their initial order and you benefit more because your expertise results in a greater average transaction value.

The idea is to follow-up. Take a careful look at what people are buying from you and truly understand why — what are they trying to accomplish, how can you help them achieve it, and can you add more value simply by engaging and talking to them about their purchase.  What may result is a greater level of customer satisfaction and volume of purchase.

Money may move from the table to your pocket.

What do you think?

While  access to commercial loans is difficult, an alternative to consider in your search for capital is an angel investor.  And while angel investors are non institutionalized, they’re far from unsophisticated.  In fact, some angels are more sticklers for detail than their VC cousins — after all, it’s their money.

Fobes.com offers Ten Ways to Attract Angel Funding.  I’d like to highlight #8 for you:  Finalize Your Financial Model.   In fact, I’d really like to highlight one aspect of your financial model — revenue forecast.

Here’s the deal

You should know everything about your first year projection.  I mean everything.  If you can’t answer these questions, the odds of hitting your number are slim.  And if you can’t hit the first number, how are we to believe you’ll hit the second, third or fourth number in your plan?

We won’t.  That’s the rub.

On the heals of yesterday’s post on limited commercial lending, here’s a Reuters article that adds further frustration to the topic.  According to the article, stimulus money intended for small business isn’t reaching potential buyers because the lenders don’t want to take it — the strings attached aren’t considered good business for the banks.

The problem?  Paperwork and potential restrictions from the government on dividends and payroll of the banks making loans.  That and some banks are concerned of a potential stigma of being known as an institution that took stimulus money.

The middle-man in the deal doesn’t like the deal.  And that may mean businesses who can benefit from a loan — if not have a necessity for one to survive — may not get one.

Bankers said they are hesitant to take capital injections from the government because of the stigma and the potential restrictions on dividends and compensation…The bankers said the SBA loan program has promise but involves a lot of paperwork and takes a long time to process the loans.

Here’s the rub

As shared in yesterday’s post, banks are cranking out new credit card programs left and right to bridge the gap in lending.

So, what’s a business to do?  When it comes to access to commercial lending, it appears small businesses are facing the reality of damned if you do, damned if you don’t — taking credit where you can get it or throw-in the towel.  Even if it means taking money with up to 30% interest.

What do you think about all of this?