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Applying Corrective Action to Fix Cash Flow Problems in Your Business

You wouldn’t take cough mixture for a sprained ankle or use a hammer where you need a screwdriver.

By Willie van Dyk on OKT 14, 2021

Applying Corrective Action to Fix Cash Flow Problems in Your Business

You wouldn’t take cough mixture for a sprained ankle or use a hammer where you need a screwdriver. Yet, business owners keep taking the same knee-jerk action to fix cash flow problems—and wondering why they don’t work! If you’re looking for a silver bullet, quick fix or “business cash flow hacks”, you will be disappointed. For proven, sustainable ways to fix cash flow problems for good—you’ve come to the right place.

What is a Corrective Action Plan to Fix your Cash Flow Problems?

Consider a corrective action plan like a treatment plan prescribed by your doctor, “take two of these and call me in the morning.” Okay, maybe not that easy, but close! It’s your PVA or POA, the plan of action describing what you are going to do—or change—to address problems within the company.

It’s the steps you’re going to take to make your business better.

Your whole business. As much as we’ve been harping on about cash flow, a corrective action plan improves business operations overall. And when your business is running optimally, cash flow shortages will naturally improve.

How Do Corrective Action Plans for Financial Problems Work?

There is no one-size-fits-all solution to improve cash flow, just like there’s no single way to stop the “clunk-clunk” coming from your car’s engine. That’s because you need to get under the hood and find out what’s causing the problem first.

If you’ve been following the Finance 101 series you might have already figured out that this is where your management reports  come into play. Your reports will help you to quickly identify where the problems lie and what is causing them. Now you can find the appropriate solution successfully. 

All this theory sounds great, but let’s take an example in action. 

Examples of Corrective Actions to Fix Cash Flow Problems

So, you’ve followed all the essential business finance best practice steps that you can. You forecasted and set a budget to set the course. Then you implemented systems and controls to keep your business on track—but you’re just not reaching break even. What is the matter? 

It’s easy to jump to the conclusion, “I must increase my price”, but how much of an increase would you need? Will that make your goods way more expensive than everyone else? You might as well hand your competitors your sales. 

Corrective Action Option 1: Price Increase

Pricing is a good place to start, though it might always be the best fit. Of course, if it’s been forever since you implemented a price increase, new rates could help get rid of those clients who don’t but much but cost a fortune to maintain. It will also elevate the perceived value of your product.

Corrective Action Option 2: Increase the Frequency of Transactions

Are there viable ways to get existing customers to buy more or more often? A small investment in a sound customer relationship management system could turn around your business. 

Corrective Action Option 3: Leverage Cross- And Up-Sell Opportunities.

Are there viable ways to get existing customers to buy more or more often? A small investment in a sound customer relationship management system could turn around your business. It could be as easy as running an email campaign to your database to inform clients of product extensions and add-ons. Wait, maybe you don’t have any add-ons. Is there an option to develop something cost-effective?

Corrective Action Option 4: Focus on New Business

Finally, while you always want to follow the 80/20 principle of sales, the answer could be that you need new business. What are you doing to generate leads? Is it working? Is your cost per acquisition a smidge too high? Are you not spending any money on lead generation at all? 

Corrective Action Option 5: Switch Marketing Tactics

Finally, while you always want to follow the 80/20 principle of sales, the answer could be that you need new business. What are you doing to generate leads? Is it working? Is your cost per acquisition a smidge too high? Are you not spending any money on lead generation at all? Beware of the dangers of not marketing your business. Perhaps flyers are a waste of money because your target market is online. Don’t avoid social media because it is foreign or challenging. Consider instead a small investment in professional help that could set you up with a steady stream of leads going forward.

Corrective Action Option 6: Lower Costs or Expenses

You might not be able to increase your prices, but you can control what you’re spending to make sales. Review your procurement process. Reach out to suppliers to negotiate better rates and shop around for new options. Maybe there is new tech that can bring down costs significantly! 

Corrective Action Option 7: Increase Output and Fulfilment Capacity

This is always a sobering point, but it can be a game-changer. Have you considered that maybe your rate of delivery is letting you down?

Would a higher order-fulfilment rate offset operational costs—and get you to the glorious break-even point?

Take a serious look at optimising processes for more output. You could be understaffed. If one more person will make the difference to sales numbers, it’s a no-brainer.  

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