1-2-3: Small Business Startup
Increasing Sales and Cash Flow
(Date posted: May 21, 2009)

This final step in your small business startup shows how to increase sales and cash flow. First, you will eliminate any operational problems. Then you will use various methods to increase sales and cash flow.

Before beginning this step, you should have improved customer satisfaction. The previous step shows you how to do this.

The desired result of this step is to attain a level of sales and cash flow that you can handle and that satisfies your long-term business goals.

Here are the topics:

Guidelines
Procedures
Example
Continue or maintain decision

This is the last step in your small business startup program. However, if your business undergoes major changes or you start a new business, you may want to repeat these steps.

IMPORTANT

Before using this information to improve your business be sure to read the following notice: Disclaimer

Guidelines

If you decide to grow your business beyond the home-based stage then you should get professional advice.

There are various ways to accomplish this increased activity. You could form a virtual company in which most of the activity is subcontracted out to other firms. Alternatively, you could begin to hire employees and delegate some of your responsibilities to them.

On the other hand, as you reach a certain level of activity; you may decide to stay at this level. This level of activity may be all you can handle.

Procedures

You first should eliminate any operational problems. Then you can concentrate on increasing your sales and cash flow. Normally you would handle sales and cash flow at the same time. They tend to reinforce each other.

Here are the procedures:

Eliminating any operational problems
Increasing your sales
Increasing your cash flow

After increasing sales and cash flow significantly, you might develop some more operational problems. You would then go back and work on eliminating these new problems.

NOTE: If you are operating a low-cost, low-risk type of business, review the Bootstrap Methods page in another section on ways to save on cash.

Eliminating any operational problems

During this procedure, you will identify and eliminate operational problems, bottlenecks, and inefficiencies. This prepares your business for expansion. If you don't do this, your business could become difficult to handle when you try to increase sales and cash flow.

Use the following checklist for ways to optimize your business:

Review your accounting reports -- Use the reports you created in the Setting up an Accounting System step to monitor your operational performance. If you fail to meet your goals, take any corrective actions needed. (As you become more experienced in running your business, you may want to add new reports.)

Eliminate any recurring problems -- There are various problems that might arise on occasion and then fade away. This could be due to peaks in activity, seasonal factors, sales to certain customers, sudden bottlenecks, unexpected delays, or other circumstances. These recurring problems, if serious enough, should be investigated and resolved. The pages on Solving Common Business Problems and Resolve Problems in other sections may help you.

Smooth out any rough edges -- Sometimes awkward situations arise that interfere in business operations. If these situations are serious enough they should be investigated and resolved.

Eliminate any unnecessary procedures -- After you gain more experience in running your business, you may find that certain procedures aren't needed or can be made more efficient. If so, make the change, and review the results.

Automate business procedures -- If not already done, it may be beneficial to automate those routine procedures that require significant time, effort, or expense. Then this time, effort, or expense can be used on more important activities, such as increasing sales. The normal way to automate procedures is to use specialized programs on your computer. You can probably search the Internet to find whatever program you require.

Eliminate any remaining customer complaints -- The previous step on Improving Customer Satisfaction should have eliminated most of the causes for customer complaints. If any more complaints arise use that page to take corrective action.

Overcome time-wasting habits -- When you operate a business, you can't afford any time-wasting habits. Use the methods from the Use Time-Saving Tips page in another section to overcome these habits.

Increasing your sales

After you have eliminated all serious operational problems, you can devote your time and energy to increasing sales. However, you don't want to increase your sales beyond what you can handle.

The following checklist provides some possible methods to increase sales:

Focus on your most productive customers -- There is an 80/20 rule that asserts that 80% of your sales come from 20% of your customers. Assuming this rule is true it may be worthwhile to focus your attention on those few customers, or categories of customers, that generate the most sales. Thus you might develop various incentive programs that you use only on your best customers.

Focus on your most productive advertising -- Marketing experts advise business owners to test various advertising. So don't put all of your advertising money into your initial advertising ideas. Instead, dole out your advertising money in chunks to see which ideas bring the best results. Then you can base your advertising program on these best performing ideas.

Improve your business image -- One way to increase sales is to become known as a knowledgeable and trustworthy business owner. If your product is information, you could provide free information in a website, newsletter, or newspaper articles.

Expand your advertising program -- After your business starts making money you may want to expand your advertising program. This presumes that the profit from these increased sales exceeds the related advertising cost. Here again, you want to test the concept before spending lots of money.

Pay finders' fees -- It may be appropriate in your business to pay for leads that produce sales. The cost of the leads will usually be less expensive than the advertising needed to produce the same amount of sales.

Give discounts on repeated sales -- If you make repeated sales to the same customers, you might try offering discounts to your best customers. The idea here is that it is usually less expensive to give discounts to existing customers than to incur the advertising or other expense of getting new customers.

Use your satisfied customers -- satisfied customers may provide testimonials that you can use in your advertising program. You could also pay them for sending you new customers.

Expand your sales area -- After you have exhausted your current source of customers, you may want to expand into another area. You would first want to investigate how much expense would be involved. Then you can decide if this idea is worth pursuing.

Develop new products -- This is another way to increase sales. This could be a good idea if the new product complements your existing product. Otherwise, this is akin to starting a new business, which may be risky.

Increasing your cash flow

The net profit from any increase in sales will automatically increase your cash flow. (I am assuming that any additional sales will be profitable.) So in order to preserve this increase in cash flow all you need is to keep your costs and expenses under control.

Use the following checklist to control your costs and expenses:

Eliminate unnecessary costs and expenses -- It is very easy to incur additional costs and expenses. All you have to do is write a check or use your credit card. So you need some way to control these expenditures. One of the best ways is to make out a monthly budget. Keep track of what you have already spent on a certain category. This will tell you when to stop incurring costs or expenses for that category.

Use bootstrap methods, if feasible -- See the page on Bootstrap Methods in another section for ways to reduce cash disbursements. If you want to conserve cash, this is one way to go.

Minimize fixed costs and expenses -- In order to maintain a low break-even point try to use variable costs and expenses instead of fixed costs and expenses. Thus you might rent an expensive piece of equipment when you need it for a job, rather than purchasing it. (You need to keep the break-even point lower than sales in order to show a net profit at low sales volumes.)

Don't splurge on new furnishings and equipment -- If you want a low-cost, low-risk business you need cash, not a fancy office or expensive production equipment. These luxuries can come later after you have built up a large cash position from a thriving business.

Moderate your cash withdrawals -- Another temptation is to start withdrawing large sums from your business before it has become established. A better way to handle excess cash is to take out part and leave part. Then both you and your business will be better off.

Example

(Note: In the meantime, business conditions have nosedived worldwide. Thus I have decided not to hold back my best ideas for to use in the for-sale e-books. Instead this free website will get everything I have. However, at a later time I may be able to sell advertising blurbs of others.)

I haven't started business operations yet. Therefore, this example is just supposition on my part. For each of the three areas of concern, I will discuss some items that might apply to my proposed business venture.

Eliminate operational problems

Review accounting reports -- I will use my daily cash report and monthly financial statements to monitor and control business operations. My main goal is to develop a healthy cash flow from the business.

Automate business procedures -- I will be able to use automated computer programs to handle sales and product delivery. Thus, once the business starts operating, I will be able to focus on handling any customer complaints and developing new products.

Increase sales

Focus on most productive advertising -- At first I will test various low-cost advertising and promotion methods to see which ones are the most profitable. After the business becomes established, I will test some of the more expensive advertising and promotion methods.

Develop new products -- After I have finished the free website I should be able to develop a new eBook every one or two months. I will use feedback from visitors to determine subjects for new eBooks.

Increase cash flow

Minimize fixed costs and expenses -- I have plans for only one fixed cost or expense. This would be the purchase of the QuickBooks Pro accounting program.

Moderate cash withdrawals -- I don't plan to take out any cash withdrawals until I have accumulated $2,500. Then I will start taking out one-third of the excess cash each month.

Continue or maintain decision

This is the final step in your small business startup.

You may want to continue making these improvements until you attain your business goals.

On the other hand, you may decide at some point to maintain the existing level of business operations.

These are your choices:

• Continue making these improvements
• Maintain existing level of business operations

For a while, you might want to consider this decision at the end of every month. You would keep considering the decision until you have either attained your business goals or decided to maintain the existing level of business operations indefinitely.

Continue performing these procedures and continue testing this decision if you can answer "yes" to either one of the following questions:

• Are there still some improvements you want to make to your business operations?
• Are you still striving toward your business goals?

If you have answered "no" to both of the above questions, maintain the existing level of business operations and stop testing this decision.

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