In mid-February I gave a presentation to 60-plus members of the Institute of Management Accountants (IMA) based on my book How to Make Your Banker Happy. The book was developed as a result of interviews I conducted with ten small- to mid-market banks on what their best customers do well. The majority of the audience was made up of individuals that are CFOs, CMAs, and CPAs. Many of the attendees work for small to mid-market companies.
I covered these topics:
- Focus on the financials
- Understand credit
- Communicate proactively
- Use good business practices
- Engage advisors
- Demonstrate professionalism
- Focus on the customer
- Express appreciation
- Be proactive
- Develop succession plans
One area I covered in-depth was six ways to improve cash flow:
- Raise your prices
- Sell more
- Invoice immediately for work or service performed, reducing days to cash
- Collect receivables at a quicker pace by offering an early pay discount
- Get longer terms with your vendors and suppliers
- Reduce expenses
A discussion ensued about raising prices. The problem for businesses that do not raise prices on at least an annual basis is that they start to lose margin over time. Raising prices gradually over time allows businesses to stay ahead of their increased cost of doing business, and it’s unlikely customers will say much to those small increases. However, when the business has not been raising prices and then makes a big increase to make up for lost ground, then the customer notices and will often push back on the large increase in pricing.
One attendee asked a follow-up question about how a business in a competitive environment can increase prices. It’s difficult to compete in a crowded space, and I don’t recommend it; but if you are in such a space, then the business needs a significant differentiator to stand out from the competition. This can be in product differentiation or better service. The tendency for a business in a very crowded space is to try and compete on price. But this is a race to the bottom and an ineffective strategy. Product and service differentiation is a much better strategy.
If you want to make your banker happy and increase your cash flow, we can help you. We are experts in business growth. Call 503-312-3145.