5 Ways Your Business Can Improve Cash Flow

For small businesses, cash flow is half the battle of staying open and growing. Unfortunately, most small businesses are ill-prepared to handle some of the challenges that come with financing, invoicing, and budgeting. If you feel strained in these areas, a few improvements in key areas could dramatically change your business for the better.

5 Tips for Improving Cash Flow

If allowed to persist, strained cash flow will lead to serious problems and flaws in almost every aspect of a small business. In particular, it’ll cause you to make bad decisions in relation to pricing, hiring/firing employees, and spending. The best way to avoid these issues is to smooth out any of the rough spots that are negatively impacting your cash flow. Here are a few helpful tips:
1. Lease, Don’t Buy

Don’t get talked into buying equipment or real estate because of the long-term benefits, when it’ll strain your cash flow in the short-term. Sure, it may make more sense to purchase something when you look at a 10-year cost analysis, but that’s only theoretical. In the real world, it could prevent your business from growing and/or being profitable. 

When you lease, you pay in small increments. This frees up cash that you can use for down payments on other purchases. It allows you to be more competitive. It also ensures you don’t get locked into something you’ll no longer want or need in a few years.
2. Run Credit Checks

If customers aren’t willing to pay for your products or services in cash, don’t automatically extend credit without first doing some due diligence. You have every right to conduct a credit check and deny the client if they’re deemed to be a risk. Because as much as you may want to accept the sale, questionable credit isn’t worth the long-term frustration that stems from paralyzed cash flow. 
3. Create a Cash Flow Forecast

The worst thing you can do is maintain a reactive approach to cash flow. You need to look forward and adopt a proactive, predictive stance. 

“The best way to stay on top of your business’s cash flow is to create a cash-flow forecast. This will help predict the cash flowing in and out, and reduce any shocks to your bank account,” Australian Bookkeepers Network explains. “If you’re not confident with your bookkeeper skills, there are many professional bookkeeper services that can help with your cash-flow accounting.”
4. Send Invoices Immediately

Small businesses are often unsure of how or when to invoice. To avoid coming across as pushy or desperate, they’ll wait a couple of weeks to bill a client. Unfortunately, this reduces the chances of getting paid on time. It’s best to send an invoice within a few days of delivering the product or service. You should also clearly list any discounts for paying early and late fees for late payments. (And make sure you enforce the latter.)

5. Reduce Fixed Overhead Costs

You have to spend money to stay in business. But when cash flow is tight, it becomes necessary to cut back. And while fixed overhead costs can be tough to manipulate, they aren’t off limits.

“With a little finagling, you can reduce many of the fixed costs that threaten to tighten your profit margin,” entrepreneur Dave Llorens writes. “Even pinching a few dollars here and there can add up to measurable monthly, quarterly and annual cost savings. The key is to sift through your expenses and determine which ones you can eliminate or lower before ultimately devising a plan to eat this money-hungry elephant one bite at a time.”

Popular ways to reduce overhead costs include outsourcing certain responsibilities and tasks to contract workers; replacing old appliances and equipment with energy-efficient alternatives; encouraging employees to work from home; and renegotiating leases.

Stop Ignoring Cash Flow Problems

Small business owners often get so frustrated with cash flow issues that they choose to ignore the underlying causes and focus on other tasks – like enhancing marketing, improving sales, or investing in product innovation. And while there’s nothing wrong with any of these things, they’ll all cease to provide the return you’re looking for if cash flow is strained. 

Deal with the issue at the source and you’ll discover that all of the other pieces of your business puzzle fit together.