Finance & Accounting

6 Ways to Stretch Your Cash

6 Ways to Stretch Your Cash

When money is tight you may need to squeeze every last drop out of available funds. Practical strategies, such as negotiating payment terms and establishing credit early, can help you get the most from your cash.

By Peter Fretty


Regardless of how well your business runs, it never seems as if the money goes far enough, especially in the early years. Actually, this explains why so many business owners rightfully say they live or die by cash management. Fortunately, by taking a strategic approach, it is possible to get the most from your money. Below are six strategies that could help your business achieve greater cash flow stability.

1. Develop Key Partnerships
When it is possible to establish partnerships with suppliers, they may be more open to favorable payment terms, says Mike Fritsch, CEO of Austin-based Prometheus Performance Systems. “By devoting time to your relationships, you might also be able to find some creative win-win arrangements,” he says. “You might even establish a revenue or margin sharing agreement with a key supplier that allows you to maximize your cash flow. I’ve seen such agreements open the door to new business for both parties.”

Chellie Campbell, Los Angeles-based author of The Wealthy Spirit and Zero to Zillionaire, says these relationships also can foster opportunities to trade goods or services instead of purchasing them for cash. “When I moved my office location, I traded my consulting services with a mover, an office organizer and a printer for my new stationery and business cards,” she says. “They were happy and so was I, and the trade helped us all get what we needed without straining cash flow.”

2. Establish Credit
Business owners should also be prepared to use their personal resources and cash flow especially when their business is young, Fritsch says. “This is why having personal credit is so important—in many cases it is necessary to support the business while building up to profitability,” he says.

Joe Kennedy, author of The Small Business Owner’s Manual, says while many businesses find it difficult to establish bank credit, even nominal trade credit is a great way to lay the foundation for big numbers. “Many businesses, especially small businesses, understand the position of a new business owner and will take a chance with a small credit line in the hopes of expansion later,” he says. “Then, if bills are paid on time, this may be greatly increased.” 

3. Negotiate Payment Terms
While many weigh their options when negotiating terms with suppliers, the same holds true with customers. For instance, if industry practices dictate granting credit to customers, offering a discount for early payment may improve cash flow. However, this can be expensive, so be up front with customers and make sure they understand that the discount goes away if funds are not received as stated on the invoice.

Many expenses are up for negotiation, explains Janet Attard, founder, president and owner of Centereach, N.Y.-based Attard Communications. This is why she recommends asking for discounts. “Some firms only offer discounts for repeat purchases or orders over certain dollar amounts when customers ask,” she says. “Things like rent, bulk orders of merchandise, certain kinds of services can often be negotiated. Don’t be so tight-fisted that you waste time and annoy suppliers, but try to come to reasonable terms whenever possible.”

4. Capitalize on Credit Cards
While some institutions refuse to extend credit to small businesses, it may still be possible to have payment terms with the monitored use of credit cards, Attard says. Credit cards with rewards attached , such as the MasterCard Rewards Cards, can stretch your dollars. MasterCard offers several card programs for small businesses. “Many small businesses benefit from attending seminars and trade shows, but the cost of airfare and hotels can quickly mount. However, if you use a business credit card to pay for most of your business expenses, you may be able to amass enough points to fly free or get free hotels,” she says. “Keep a watchful eye on the credit card balance and never let it get out of hand. The last thing you want is a bad credit rating.”

It may also be possible to minimize the requests for credit by accepting credit cards, which allows customers to take time on making payments without inflicting the cash crunch. Doing so speeds up cash flow by providing prompt payment, even if the customer takes several months to pay their credit card bill.

5. Limit Spending
A lot of less experienced businesses tend to make a long laundry list of things they need, and then go out and buy them, regardless of how soon they need them, Attard says. “Whenever possible, put off major purchases until there is a proven business need for them,” she says. “Think a color laser printer would make your business look really cool? It might, but until you land those first few customers, you may be a lot better off sending color work out.”

Part of limiting spending also means being on the lookout for bargains and freebies. “If you’re looking for office space for the first time, or expanding your business, don’t run out and buy new desks and chairs before you sign the lease,” she says. “Whoever had the space before you may have left behind furniture you could make do until you have more money coming in.”

6. Be a Smart Salesperson
Regardless of how attractive a deal looks on the front end, you always should avoid making deals that do not pay off long-term, Campbell says. “In the short-term you may need some cash in the door, but don’t take on a client that will be too difficult to work with just because they wave a retainer check under your nose. Pricing also is important considering that the No. 1 reason small businesses go under is because they don’t charge enough for their product or service,” Campbell says. “The best pricing is to be in the high middle range—good clients understand paying a little more for quality.”

The key, according to Fritsch, is to avoid giving too much, which might damage your reputation.  “In your enthusiasm to win business make sure you don’t give away too much value to the customer,” he says.  “Pursuing low margin or no margin business will quickly deplete your cash.”



Real-time Credit Management

There are some solid reasons why so many virtual banks are gaining market share and traditional banks are flocking to compete in the e-banking business environment. Monitoring credit in real-time can save you both time and money.

  • Monitor Activity. Online banking offers account holders the unique ability to see credit card transactions as they are posted and effectively monitor any unusual activity.

  • Convenience. Banking at your fingertips allows for scheduled or one-time bill payments thereby eliminating printing and mailing checks.

  • Reduced Fees. Since real-time banking does not require person-to-person interaction, many banks waive nominal fees.

  • A Mathematical Breeze. Monitoring your business credit card transactions has never been easier. Most online banking arrangements work in concert with accounting programs, which make reconciliation a breeze.