Don’t be tempted by “New” technology
New products, especially electronic gadgets, are continually introduced with cutting edge features. But before succumbing to the advertising excitement, confirm that the new features will provide a meaningful performance improvement in the ways you use the product in your business. In most cases, you will discover that the benefits are not worth the added cost. Use your existing equipment until it cannot be repaired at a justifiable cost or until the job requirements change and require upgraded equipment.
Buy used equipment, when possible
Used equipment in good condition can generally do the necessary work as well as a new piece of machinery. If you need equipment, search the local advertisements and auctions in your area, specifically looking for companies whose assets have been levied and are being sold by the lender.
Delay product upgrades
Technological upgrades – software and hardware – occur several times per year. Often, the change between one version and the next is minimal or adds features which you will not use. Be prudent when buying or upgrading computers, cell phones, etc. Consider open-source software, which is generally free or available for a small donation. If the software provides increased security over your data by hindering hackers who would destroy your business operation for thrills, you should think seriously before deciding not to upgrade. Safety and security always come first.
If there is no penalty for late payments, set a pay cycle of 45 to 60 days from the receipt of the invoice. While slowing the outflow of cash is important, it is equally important to maintain a good credit rating and cordial relations with critical vendors. If you are forced to delay payments, contact the vendor as soon as possible with an explanation and a plan to become current on your debt.
Barter products for goods and services
Approach those suppliers that are also customers about a “trade” in which each company receives all or a portion of their respective payments in the form of finished products. Since the exchange value is usually set at each company’s respective retail price, a barter agreement effectively provides a “discount” in an amount equal to the net profit margin on your product and allows you to maintain cash that would otherwise be used.
Use cash, not credit, for greater discounts
While this strategy may appear contrary to the need to conserve cash, it illustrates the need to remain flexible at all times in every kind of market environment. During hard times, your vendors’ objectives may be to build as much cash reserve as possible, prioritising cash over profits. In those cases, they may offer very deep discounts in their prices in return for cash. If the greater discount justifies the use of cash, take it.
Similarly, if you pay with cash for small purchases, negotiate an extra discount from the sellers since you are saving them the credit card processing fee. If they are not willing to give a discount, use credit cards for payment, but pay the charges to the credit card company before interest is debited to the account. If you use one of the better business credit cards, you’ll receive extra rewards – miles or points for airlines, hotels, and meals – that will save cash elsewhere.
Finally, financial flexibility is important to every company, particularly when the future economic environment is unclear. By using the suggested cash flow strategies above can build up your bank balances and reduce the likelihood that you will be forced to take distressing actions.
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