What are five ways to improve your cash flow through cost reduction and profitability improvement?

1 Reduce fixed costs

Fixed costs are the expenses that you have to pay regardless of your sales volume, such as rent, utilities, salaries, and insurance. They can eat up a large portion of your revenue and limit your cash flow. To reduce fixed costs, you can negotiate better terms with your suppliers, landlords, and lenders, outsource or automate some of your functions, or relocate to a cheaper location. You can also review your contracts and subscriptions and cancel or downgrade any unnecessary or unused services.

2 Increase variable margins

Variable margins are the difference between your sales price and your variable costs, which are the expenses that vary with your sales volume, such as materials, labor, and commissions. They indicate how much profit you make from each unit sold. To increase variable margins, you can raise your prices, offer discounts or incentives for bulk or early payments, or bundle or cross-sell your products or services. You can also lower your variable costs by finding cheaper or more efficient suppliers, reducing waste or defects, or optimizing your inventory levels.

3 Optimize your receivables

Receivables are the amounts that your customers owe you for the goods or services that you have delivered. They are an asset, but they also tie up your cash until you collect them. To optimize your receivables, you can invoice your customers promptly and accurately, offer multiple payment options, enforce clear and consistent credit policies, and follow up on overdue accounts. You can also use factoring or invoice financing to get immediate cash for a percentage of your receivables.

4 Manage your payables

Payables are the amounts that you owe to your suppliers, vendors, or creditors for the goods or services that you have received. They are a liability, but they also provide you with a source of short-term financing. To manage your payables, you can negotiate longer payment terms, take advantage of discounts or incentives for early payments, or consolidate your debts into a lower-interest loan. You can also use cash flow forecasting to plan your payments and avoid late fees or penalties.

5 Diversify your income streams

Income streams are the different ways that you generate revenue from your products, services, or assets. They can vary in terms of size, frequency, stability, and profitability. To diversify your income streams, you can expand your target market, add new features or benefits to your existing offerings, create complementary or alternative offerings, or leverage your existing assets or skills to generate passive income. Diversifying your income streams can help you reduce your dependence on a single source of revenue and increase your cash flow potential.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?