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Posted on Mon, Nov. 09, 2009 10:15 PM
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Commentary | Ideas for small businesses to improve cash flow

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If there is one lesson that small businesses might learn from today’s difficult business climate, it is this:

Only the strong survive.

These days, the strength of your cash flow could be the difference between the life and death of your business. Here are five ways to improve the stability and predictability of your cash flow:

1. Develop new income streams.

This could mean finding new distribution channels for your existing products or identifying additional products or services to sell.

Let’s say you operate a construction company. You build hospitals and schools for a living. But you also know a thing or two about recycling construction materials. Some contractors are turning that knowledge into a source of income. The bonus is that they cut their waste disposal expenses and environmental liability in the process.

The key is to identify opportunities that allow you to remain true to your core business and not add disproportionately to your expenses.

2. Scour the market for potential customers and staff.

No one likes to see other businesses fail. But when they do, their biggest assets — their customers and star employees — are often left orphaned. These two groups can represent a tremendous opportunity to any company that can successfully tap into them. Not ready to add permanent employees? Consider hiring outside talent on a freelance basis, paying them project by project.

Similarly, failed companies often leave equipment and inventories behind that are sold by liquidators for pennies on the dollar. The right purchase could help you enter a new line of business or expand the one you’re in for a fraction of what it might normally cost.

But be sure you know an item’s fair market value before you commit. An Internet search of the item or call to your banker to see what financing is available based on the age and model of the equipment should tell you what you need to know.

3. Pursue strategic alliances.

Businesspeople aren’t generally comfortable asking friends and relatives for referrals. But now is no time to be tongue-tied. Look for opportunities to barter or trade for services, rather than paying for them outright. Consider strategic alliances, joint ventures and other arrangements that help build customer loyalty, bolster vendor relationships and strengthen your cash flow.

The time-tested way to build these relationships is through networking. If you don’t already have a strong professional network, establish one. If you have one, look for ways to expand it in new directions. You can try the old-fashioned route and attend chamber of commerce events and other business events. Or you can take advantage of the myriad social networking opportunities online.

How might you use your network once you’ve established it?

Consider two small businesses — one sells gourmet chocolates, the other sells wine. Now might be the time to form an alliance to market gift baskets featuring both lines of products. Each shares its customer lists with the other, and everybody wins.

Alliances can take other forms as well. Sometimes one partner contributes cash or technology, or perhaps provides a sales force. The goal is to find an approach that allows each partner to bring its strengths to a new venture.

Another option to merge with or acquire a company that complements your own, and take advantage of economies of scale by consolidating your back office operations, sales, marketing and other activities.

4. Evaluate everything.

Todd Gafney is a senior vice president and manager of business banking for Commerce Bank.

Posted on Mon, Nov. 09, 2009 10:15 PM
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