Big or small, every business should always be looking for ways to improve their cash flow. Cash flow is the overall amount of cash that’s going in and out of a business, such as revenue and investments as well as debts and expenses. The long-term success of a company is likely to be determined by its ability to not only create but also maintain positive cash flows.
Even businesses that have experienced growth and success can have cash flow problems if their financial operations are not effective. In fact, many businesses face cash flow problems when they do not have the revenue to support or pay their debts. Not having the cash (receivables) to pay off debts (payables) can set off other chain reactions that also affect a business in terms of creditworthiness and the timeliness of payroll.
Before we outline strategies that can be implemented to improve cash flow, let’s first discuss why it’s important for small businesses to improve cash flow in the first place. Understanding the flow of money leaving and entering a business can paint a better picture of the company’s financial status. Not only that, but having strong cash flow can allow businesses to both meet their existing financial obligations as well as plan for the future.
Overall, good management of cash flow can lead to smoother day-to-day business operations and help business leaders build up funds and reserves that may be necessary for unexpected situations or emergencies.
To prevent cash flow issues from cropping up, small businesses should take precautions and actionable steps to ensure they are set up for the future. Here are 8 ways small businesses can work to improve their cash flow:
- Set your long-term vision: First and foremost, it can be difficult for businesses to set processes to manage your cash flow if they don’t understand the long-term vision. One of the main purposes of managing cash flow properly is to anticipate and plan for future cash-related needs, such as a recession, dip in the market, slow season, or other unexpected circumstances. Taking a proactive approach to your cash flow management can set your business up for success in the midst of difficult times and seasonal trends.
- Automate your invoice process: Automating this process can ensure that your invoices get sent out immediately and thereby minimize the possibility for delays on collecting your receivables. Eliminating the aspect of human error can make sure you get your invoices out on time and increase the chances of receiving your payments as soon as possible. You’ll also want to make sure that your invoices are clear and free of confusion to prevent late payments.
- Leverage electronic payments: Electronic payments can help businesses buy time by allowing them to pay on the day-of the bill deadline rather than mailing in a check a few days in advance of the deadline. In an increasingly digital world, electronic payments can give businesses an advantage when it comes to avoiding the lag that comes with old fashioned mailing.
- Don’t let your existing cash go to waste: There’s nothing worse than letting your existing cash collect dust when it could instead grow. Businesses can do this by moving their cash from low or non-interest-bearing accounts into high-yield savings accounts. Another way businesses can grow their existing cash is by looking towards the future and prepaying expenses to get ahead.
- Optimize your inventory: Businesses should be regularly checking in on their inventory to see what works, what doesn’t, what needs to go, and what can be replaced. After all, it’s better to determine any new inventory that can be brought on that may be better received by your customers. Additionally, businesses can sell old inventory at a discount in an attempt to get rid of it.
- Identify which business functions you can outsource: Employing full-time staff can be one of the fastest cash-burners for businesses, especially small ones. However, in the growing world of freelance and contract workers, it’s no longer necessary to hire full-time, in-house employees for certain functions. Instead, businesses can work to outsource specific functions in order to pay only for the services they require. Doing so not only saves the cost of paying a full-time employee but also that of recruitment and replacing employees in the face of turnover.
- Vet your customers: When it comes to receiving payments, there’s nothing worse than having to worry about whether or not it will come through. This is why it’s important to vet your customers by conducting credit checks. Credit checks will allow you to see which customers are best set up to honor the agreements they have with you and pay their bills on time so that you can do the same. If a client were to have poor credit, this may affect a business’s decision to work with them.
- Don’t be afraid to raise your prices: While it can seem intimidating to raise prices, businesses should be experimenting with price ranges in accordance with market demand and economic fluctuations. Not only that, but businesses should see how much their customers are willing to pay for their products and services in order to determine where to set each price point for the present and future.
As your company grows and scales, it’s great to be excited! But it’s also important to make sure your processes are geared to make sure you can maintain a positive cash flow from month to month through normal business operations.
If you need more help strengthening your cash flow maintenance, our talented team is here to help! Reach out today to learn more about how your business structure can be customized according to your needs to ensure cash flow success.
