If you own a business and the sales are growing rampantly while you boost profits every year, you’re in the right boat. However, now isn’t the time to let down your guard. Even profitable and growing businesses can get hit with cash-flow problems if their operations, financing, and investment activities aren’t efficient.
For example, if the payables (debts) are due before the money comes in from a sale (accounts receivable), you’re going to face a cash-flow problem. That means you don’t pay debts on time, which leads to other issues. Learning how to improve business cash flow is essential (and there are great books on how to do that well).
1. Monitor Cash Flow of Business Regularly
It’s essential to keep track of the expendables and monitor your cash flow regularly. Check it out as often as needed, which could be quarterly, monthly, or weekly. Make sure you have a detailed schedule to know when upcoming events are happening and how much output your company routinely does. This enables you to spot problems and errors sooner. Consider online accounting software to monitor everything and create reports.
2. Cut Costs When Possible
When improving cash flow for your business, you should look for ways to cut your costs on recurring expenses (here are 50 different ways). This can improve cash flow quickly. Could you cut back on the rent, utilities, or payroll? Are you buying subscriptions or services that you don’t really need? Is it possible to lower insurance coverage while still protecting your investment? Decide what you’ve got that you don’t require anymore and cut anything that doesn’t serve you well.
3. Get Lines of Credit Before They’re Required
Credit cards are a great way to increase your cash flow, but there are certain things to consider. You should make sure to pay the bill off each month to avoid high-interest rates. You also don’t want to deal with late payments on the credit card.
It’s best to choose a credit card that offers rewards. Those points can be used for other business purchases. Sometimes, you can get a line of credit for a specific percentage of the accounts receivable by using it as collateral. This improves cash flow for a small business and gives you a cushion during struggling times.
4. Rent Equipment When Possible
Cash flow for a business can get tied up when buying new equipment. Instead, lease or rent it to get the same advancements and features without using too much of your money. Of course, this also benefits you because you can use the lease costs as an expense on your taxes.
5. Focus on Invoicing
Don’t wait to send invoices. When the work is done, or the products are delivered, send them immediately. Sometimes, companies pay early, which means you get paid faster. Ensure that the invoices are designed to be easy to read with highlighted areas, such as the amount due and date due. That way, you save time and naturally improve cash flow.
6. Use Mobile Payment Options
Make it easier for customers to pay you. Mobile apps can help customers pay you immediately. Make sure you set it up to accept payments by credit/debit cards. You’re going to save time and get the cash flow increase you need.
7. Speed Up Your Payments Through Incentives
Business cash flows require people to want to pay you money. Give them an incentive to pay you early, but ensure that the tradeoff is going to be worth the small loss you take. Consider:
- Offering discounts for quicker payments
- Limiting how many customers are eligible for credits
- Requiring deposits
- Maintaining a strict contact schedule about payments due
8. Request Partial Payments/Deposits for Big Orders
If you’re going to take a long time to complete the job, charge an upfront deposit before starting the work. Charge roughly half the remaining balance when you start the job, and then the full balance must be paid when you’re done. This ensures that you’ve got the cash to finance everything on your end.
9. Set Goals and Stick to Them
Managing your money helps steers the business toward an increased profit. What does yours need to be profitable? Try to project a time frame in the future where you can turn a profit. This gives you a vision and goal to look forward to while creating a target to sharpen the aim of your activities.
10. Keep Reserve Currency
You’ll always need to have currency available because you don’t know when emergencies might arise. There are bound to be gaps in the schedule of money going out and coming in. While borrowing capacity can’t be considered a reserve on the balance sheet, you can still use it that way. They are marked differently than expenses, but they are, essentially, the same.
11. Get Outside Help
Managing your funds is vital. You may need to work with another company to help you track and increase cash flow, and it might work well for your business because you can focus on other things.
You may want to look into a collection agency if you’ve got many unpaid accounts. This boosts the funds you have available at any given time and reduces your overall debt. Most collection agencies specialize in various management tasks, so they can offer support and advice, as well.
If you’re struggling and focusing more on getting customers to make on-time payments, it can help to outsource your needs instead of managing debt collection on top of everything else. Of course, you need to ensure you’ve got the funds to do this, as it takes away from the accounts, as well.
Small businesses always have an issue with their accounts. You have to ensure that you’ve got enough to compensate employees, handle bills, and all the rest. This may mean that you have to lower prices, give incentives to customers, and think outside the box. In the days or weeks to come, think about how much you spend and what you can do to lower it. Also, take into account your net totals for the week and create a budget to help you see where everything goes.