Q: My modest food business has been running low on cash lately. How do I improve my liquidity without dipping into my personal savings?
A: If your business is making a profit but running short on cash most of the time, then you may not be managing your cash flow well. No healthy company, even if it is profitable on paper, could survive if it doesn’t have a sustainable cash flow.
You need to monitor regularly and manage carefully the cash coming into and going out of your business. When you analyze your financials, here are a few tips:
1. Check your pricing. Your average gross profit margin may not be sufficient to cover your overhead expenses. Evaluate your products one by one and look for an opportunity to increase your prices without affecting overall demand. Compare your margins if they are at par with the industry average. Is your average margin comparable to that of your competitors? If your prices are too high, you may want to lower them to make your products competitive. This might help boost your sales volume and cash revenues.
2. Train your staff to upsell. You can get more revenues if every customer who buys from you purchases an additional item. For example, you can run a promo where customers can buy dessert at 20-percent off for every set lunch ordered. If every customer pays extra for the dessert, the total incremental revenues could mean huge cash flows for you.
3. Develop loyal customers. Encourage customers to visit your restaurant regularly by giving them incentives. For instance, you may reward customers with a special gift if they dine in your restaurant a certain number of times. With a strong, loyal following, you are guaranteed regular cash flows, allowing you to ensure a profit by controlling your expenses within the expected revenues.
Negotiate longer credit terms with your suppliers to maximize the use of your cash for other productive activities.
4. Tighten your inventory levels. Avoid overstocking supplies by ordering only those items you expect to dispose within the selling period. Any excess inventory not consumed on time means additional costs, because this is the inventory that you could have converted to cash.