One of the reasons why business fails is a poor cash flow management. Effectively managing cash flow is vital to the running of your business.
Even if your company is currently profitable, it is still at risk for negative cash flow as at any time your business can be hit with cash flow problems if finance, operations, and/or investing activities aren't running efficiently.
If you want to improve your business cash flow, you will need implementing new strategies. There are two primary ways to do so: increase revenue and decrease expenses.
By maximizing your company’s cash flow, you can help your company receive profits faster, meet targets in a shorter time frame, and lower your operating expenses. Are you wondering how to improve cash flow in your small business? These 12 tips can help you manage cash flow of your business.
1. Analise your accounts
The first part of understanding how to improve your cash flow is by analysing it. Whatever your size of business, you should be routinely receiving data about your numbers and analyse it accurately to understand the flow of money through your business.
2. Have sales process plan
Sales process covers all steps from a fresh prospect to a customer. Having a detailed sales plan including activities, tactics, tools and contracts will make or break your revenues.
3. Expand sales market
Another solution to increase positive cash flow is to brainstorm new sources of income. Here are few sales possibilities:
- create a new marketing strategy,
- identify and target new markets,
- add new services or products,
- consider selling online.
4. Increase prices
The price you charge will have a direct effect on your business. You must review prices every year as all prices must cover costs and profits due to inflation increase every year.
If you have not changed your prices for the past few years, it is likely the time to increase them. Another way to increase revenue you might consider is to offer value-based sales plans.
5. Send invoices out immediately
Sales and invoices are the lifeblood of a small business. You can’t get paid if you don’t send invoices. It is as simple as that. Make sure you stay on top of invoicing your customers. The quicker you send invoices out, the faster the money comes in.
6. Manage accounts receivable
By actively managing your accounts receivable, you can stay on top of outstanding invoices and deal with debtors sooner decreasing the time it takes to get paid. Make sure you are clear, concise, and specific about all details on your invoice - and that includes the payment due date and payment types accepted!
Also consider improving your cash flow by offering various payment options, also you can ask for standing order or establishing subscription program.
7. Control operating expenses
Managing cash flow isn't just about getting more cash to come into your business. It’s also important to reduce the cash going out of your business as much as possible.
Take a careful look at your cash flow statement, analyse your business expenses and identify areas where you can reduce your costs. You can take following steps:
- cut out unnecessary expenses,
- negotiate good payment plans with a supplier,
- outsource certain business functions,
- repair rather than replace equipment.
8. Lease, do not buy asset
Leasing asset is a great financial solution for any business. By leasing you can spread costs into regular small monthly payments. An added bonus is that lease payments are a business expense, and thereby can be written off on your taxes.
Leasing can be used to fund a range of items these days, including new and used cars, light commercial and heavy goods vehicles, plant and machinery, office furniture and computer equipment.
9. Improve inventory
You need inventory to make a profit, but you want to make sure the inventory you’re buying is actually selling. Carefully consider which products sell well and make a list of those products you buy that aren't moving. Instead of buying more of what doesn’t sell, get rid of it—even if you need to sell it at a discount or consider liquidating them. Additionally, examine your sales patterns to see when your busy and non-busy sales times are and order inventory accordingly.
10. Pay tax bills on time
Failing to understand exactly what tax payments must be made and when, as well as how much there is to pay, makes it difficult for businesses to budget accurately and create reliable cash flow forecasts. To make matters worse, if filing deadlines are missed, there are penalties that must be paid and if the penalty is not paid on time, government might charge an interest, further impacting a business’s cash flow position. Many businesses are also unaware of the many tax allowances and reliefs which might be available to help reduce their tax bill.
11. Take a small business loan
Another option how to increase cash flow is to take out a small business loan. There are several great reasons to take business loan such as:
- expand your business,
- purchase inventory,
- take a new profitable project,
- pay suppliers or creditors.
With a business loan, a lender gives you a lump sum of money that is paid back in regular instalments over a short period of time.
12. Become more efficient
Efficiency can mean everything, for example:
- By boosting the skills, productivity and promotion of your staff, your own cash flow will benefit, as staff can improve the amount, quality of work completed.
- By investing in smart technology, turning to automated business software, tasks can be done easier and quicker.
- By reorganising workflow make your business operate more efficiently, therefore you can reduce cost and increase profit.
All of these tips can help you manage and increase your business cash flow. Whether you decide implementing some or all of the above strategies, you are on the right direction to improve your cash flow and running a more successful business.