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Cash flow

How to Improve Cash Flow for Small Businesses

When companies look to their cash flow, they hope the money that runs into their business flows like a mighty river instead of a trickling stream. It is the cash flow of a company that keeps them going, providing them with the means to operate.

If you’re looking to get your company out of financial straits by improving cash on hand, we can help you turn that stream into a raging river by implementing these actions into your business. Fast track to positive cash flow with these tips below.

Next: What is Negative Cash Flow and How to Manage it

Get Positive Cash Flow With These Tips

Just like the rush of water through a mill, the inflow of cash into a company is what gives it the energy to continue. You can take steps to improve this flow of money into your business. Increasing revenue and decreasing expenses can provide your operations with even more energy to continue running at peak performance.

Cash flow is especially crucial during times of great stress, such as the COVID pandemic. If your business is struggling with its finances at this time, then consider how you can improve cash flow after government funding ends COVID relief.

Apply these strategies to your business today for more ways to turn that negative cash flow into positive cash flow. Here are various ways to improve cash on hand for your small business.

1. Collect receivables

Accelerating your accounts receivable to maximize cash flow is one of the most significant ways to improve your business’s cash on hand. Receivables refer to the amounts owed to your business, which are assets, typically from customers who pay on credit. Calling in customer debt is one way to improve the inflow of cash from assets in a month quickly.

2. Stricter credit card policies

Using business credit cards to pay for company purchases provides you with a more detailed record of your finances and the money leaving your accounts each month. However, you will need to be strict with how you use your credit card and pay off the amounts.

It is not advised to carry a credit card balance into the next month, taking on extra debt from month to month. If this is hard for you to do, you might want to reduce your company’s credit limit to negate the need to carry debt. That being said, lowering your credit limit can come with its own adverse effects on your credit score. It is best to take into account your business’s credit card policies and spending habits before making changes.

3. Increase sales

Improving cash on hand through increased sales may sound like a relatively easy thing to do, but we understand that the market is volatile, and customer demand varies. Strategize with your sales team to determine how you can best move products from the shelves into your customer’s hands, quicker and in larger amounts.

4. Secure loans

How does obtaining a loan increase your cash flow? Well, the investment of money from a bank means you can use their cash to invest in your business. Loans do not show up on your business’s income statement, as borrowed money is not categorized as revenue generated by the company.

Securing a bank loan can be a lengthy process, with credit checks and financial analysis. There are cash flow loans that offer businesses quick cash to help them out of a bind, but these loans also come with higher fees and greater penalties if not paid back. If you believe a loan is in your best interest, then consider these top Canadian small business loans.

5. Lease equipment and real estate

Purchasing large pieces of equipment or other assets required for your business’s operations will negatively impact the flow of money. Such equipment and capital assets typically cost a hefty sum to acquire, meaning a large chunk of money must come out of the business to settle the bill.

Your cash flow from assets that are leased will be less stunted than if you were to purchase them outright. If your company needs new equipment, but you do not have the inflow to cover this outflow, consider leasing or financing instead of buying outright.

6. Pricing discounts

Revenue generated from selling your business’s goods or services has the biggest impact on cash inflows. A big sale on inventory can turn a quick profit for your business while reducing inventory at the same time.

The markdown of an item's price can encourage customers to purchase these goods that they might not otherwise have, resulting in greater revenue and cash on hand. Consider these discount pricing strategies when planning your next sale.

7. Cash flow forecasting

Cash flow forecasting is a proactive way to prepare your business for future financial issues. This forecast is a projection of your financial state into the next 30 or 90 days. Generate a cash flow forecast to determine the upcoming highs and lows of your cash flow.

Knowing what’s coming your way can help your business prepare accordingly. Tuck away some of your savings in case of a negative cash flow next month, or decide how best to use a positive cash inflow for the greatest impact.

8. Get a business line of credit

A business line of credit can help your company through tough times. A credit line is different from a loan, as it is a revolving account, meaning a business can draw out money, repay, and then draw again. On the other hand, a loan is a lump sum handed over to a company with strict repayment terms.

Learn more about the pros and cons of a business line of credit.

9. Prioritize invoicing procedures

Your business’s invoicing payment terms can significantly affect the amount of cash you bring into the company each month. If you provide a net 30 pay date, you allow your customers to pay at a later date, even though you have already given them your goods or services.

Therefore, if you require greater cash flow in the coming months, you may want to revise your payment terms to ensure cash reaches your account sooner.

10. Provide electronic payment to get paid faster

Improving cash on hand can start with the customer. Provide them with a quick and easy way to pay their invoice, and you could receive your money twice as fast. Things like email invoicing and payment links within the invoice can help your clients streamline the payment process. You could even offer loyal customers the option to sign up for automatic payments, ensuring cash is steadily flowing into your business each month.

11. Clear out or reduce inventory

Quickly turning over inventory means securing the sales for the goods while cutting inventory costs. Reducing inventory can lower the expenses attached to purchasing, delivery, and storage. Many businesses only stock what they know they need to cut down on overhead costs and improve cash flow.

Various inventory management strategies will impact your inventory and cash inflow and outflow, so it is best to familiarize yourself with these techniques to get the most out of both.

12. Cut costs and track expenses

One way to boost your cash flow is to decrease the amount of money flowing out of the business at any given time. This means cutting out non-essential expenses from month to month. Your business should always track expenses to determine where the money is going and how it is being spent. If you hit a lean month, take a look at your spending habits and determine the expenses you can go without for the next while.

13. Delay supplier payment

Cash flow from assets and current assets have always been intimately linked. You spend money on your inventory, and your inventory has value to your business. To acquire stock, you must purchase your goods from suppliers, which creates a massive cash outflow each month.

If you need to boost the inflow of money one month quickly, speak with your suppliers to see if you can delay such payments until a later date. Nonetheless, be ready to pay suppliers the amount in full when that date comes around; otherwise, it could damage your work relationship.

Fast Track to Cash Flow With QuickBooks Online

Listed above are several steps you can take to increase your business’s cash inflow. To gain the most out of these actions, implement them alongside accounting software like QuickBooks Online.

Know what’s coming in and out of your accounts each month with expense tracking to take control of your business’s finances. Benefit from financial reporting and  cash flow statements  to keep a pulse on your business’s finances. Seek to improve your cash flow today with QuickBooks Online!

Next: What is Negative Cash Flow and How to Manage it

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