Tips for Improving Your Small Business’s Cash Flow

One of the most important signs of a small business’s financial health is its cash flow. This concept isn’t always easy for owners to understand, which is a problem considering how vital it is. This guide can help you understand what cash flow is, how it works and how you can increase it for your company.

What Is Cash Flow for Business?

Put simply, cash flow is the measure of money coming in and going out of your business. In an ideal world, you would always have more funds available than expenses to spend it on. This is called positive cash flow, and it’s what every business owner should strive for.

Sadly, some small businesses have negative cash flow. They can’t seem to keep up with expenses and different times of the month. Interestingly, this can even happen when the business is profitable overall. The money may be coming in, but not at the right time of the month or not consistently enough to handle obligations.

How Can You Improve Your Company’s Cash Flow?

The solution to cash flow issues has to be something tailored to your circumstances for it to work. Every business typically has different reasons for poor cash flow or low working capital. Unless you resolve those problems, pumping more money into the situation with a loan isn’t going to fix things. Follow these helpful tips for better success.

Increase Your Revenue

The simplest way to improve cash flow is simply to make more money. Taking the time to analyze the effectiveness of revenue operations can help you identify areas to improve. Sometimes, the problem isn’t that you don’t have enough clients, but that you’re missing opportunities to generate capital from those clients.

For example, some businesses haven’t increased their prices in decades. During that time, operating costs may have increased significantly. Small businesses often worry that raising prices will result in losing customers, but that’s not generally the case. You don’t want to be the most expensive option in town, but you don’t have to be the cheapest, either. If you bring expertise and quality to the table, you may be surprised at how much clients are willing to support your business.

Go Electronic With Payments

If you’re still doing things old-school with business checks instead of credit cards, you’re probably damaging your cash flow unintentionally. It takes considerably longer to get paid by business customers when you don’t have a merchant account for credit card payments. That’s money you should have on hand to help out with expenses, but it’s waiting in the mail.

You can also use electronic payments to give yourself more flexibility with your bills. Check the grace period for your business credit card or line of credit. If you have a grace period of several weeks interest-free, you may as well take advantage of it to streamline your operations. Of course, you should always set a limit for how much debt you have on cards at any given time, generally no more than 30% of your total line.

Invoice Immediately

How long is your team taking to invoice clients? Any delay means it takes longer for you to receive working capital. Some small business owners forget to bill until a week or more has passed! It’s smarter to have automated invoicing software that lets you bill clients the same day you deliver the goods .

Incentivize Early Payment

This tip requires finesse because you don’t want to cut too far into your profit margins. Also, if your customers are already paying relatively quickly, there aren’t many benefits to offering further discounts. If most of your clients pay on the last day possible before accruing late fees, though, you may consider motivating them with a small discount, such as 5%, if they pay within 15 days. This early payment may help your company avoid having to borrow money to meet obligations, which saves you money in the long run.

Recent Post