Cash flow tips for small business owners

Cash flow is vital to every small business. You may have an excellent business plan, a great product or service, and high market demand. But without proper cash flow management, your business may struggle to stay afloat or be forced to shut down.

According to a study from U.S. Bank, an estimated 82% of businesses fail because they don’t know how to manage their cash flow. These cash flow tips can help prevent your small business from becoming a statistic.

5 Cash Flow Tips for Small Business Owners

Proper cash flow management can help ensure your small business stays in business. Use these tips to start improving your cash flow today.

1. Optimize Your Expenses

To maintain positive cash flow, your business must have more cash coming in than going out. Cutting unnecessary spending can provide an immediate boost to your cash flow and help you stay in that positive cash flow territory.

Business expenses can easily sneak up on you. Maybe you have:

  • Unused office space that’s just eating into your cash flow
  • Expensive employee phone plans
  • Old technologies or software solutions you’re not really using.

Use your accounting software to take a close look at your expenses and scrutinize each one. See if there are ways to either reduce unnecessary costs or eliminate them entirely.

Half of the small businesses have a cash buffer of less than 15 days. Reducing your expenses is a quick and easy way to build up your cash reserves so that your business can have a longer cash buffer.

2. Review Your Pricing

When was the last time you updated your pricing? If you can’t remember, then it’s time to review and update your pricing.

It’s a good practice to revisit your pricing regularly and make adjustments based on inflation, higher demand and the value you deliver.

If you sell products, there’s a good chance that your suppliers are already doing this. If you’re not adjusting your prices as well, you may find your profits disappearing into thin air.

Even for service-based businesses, overhead costs have likely increased over the last few years. Adjusting your pricing can help account for these higher costs and help you maintain positive cash flow.

Supplier and overhead costs aside, adjusting your pricing will also ensure that you’re getting paid your worth.

3. Optimize and Streamline Your Accounts Receivable Processes

Optimizing and streamlining your accounts receivable processes can also help improve cash flow by helping you get paid faster.

Do you have a standardized billing process? If not, now is a good time to implement one. Standardizing your billing processes will ensure that invoices are sent in a timely manner.

Consider:

  • How invoices are sent and when. Do you bill customers as soon as the work/product is delivered, or is there a delay? Are invoices sent through email or regular mail? Technology can help automate this important bookkeeping task to ensure customers are sent their bills as soon as the job is complete. Emailing invoices will save time and make it easier for customers to make timely payments.
  • How customers make payments. Do you offer online payments? If not, see if this is something you can start offering. The goal is to make it as easy as possible for customers to make payments using their preferred payment methods. Look into software solutions that will help you offer multiple payment options.
  • How do you handle unpaid invoices? Going forward, it may be necessary to charge interest or a fee for late payments. Sending automated invoice reminders and incentives for making timely payments will encourage customers to pay their bills.

Sales are important for every business, but they mean very little if your customers aren’t making payments in a timely manner. They only benefit your cash flow when those sales proceed to land in your bank account. So, make sure that you are taking steps to optimize your billing and payment processes. Make it easy for customers to pay their bills and send out invoices promptly to help ensure you get paid faster.

4. Negotiate Better Payment Terms with Suppliers

If you have established and positive relationships with your suppliers, consider negotiating better payment terms to boost your cash flow. Longer payment terms mean that you can keep cash in the bank for longer, buying you much-needed time for customers to make their payments.

Vendors are often willing to negotiate payment terms in their contracts, but you need to be the one to ask. Be reasonable and realistic when negotiating. Some vendors may be firm about their terms. If you find that there is no room for negotiation, it may be worth exploring all of your options to ensure you are getting the best terms for your business.

Another alternative is to use credit cards in a smart and strategic way to pay your bills. Doing so will allow you to delay your cash outflows and help ensure you have enough cash to keep operations going.

5. Maintain a Cash Flow Forecast

Cash flow forecasts help you manage your cash flow in a proactive way rather than a reactive way. When you create a cash flow forecast, you can estimate when your business will run out of cash and take steps now to prevent a cash shortage.

Maintaining a cash flow forecast will help you:

  • Take steps now to help your business stay afloat during slow periods.
  • Time purchases and hiring properly so that they don’t negatively affect cash flow.

Forecasts should be updated regularly to ensure they are accurate. The software can help you handle cash flow forecasting by automating the entire process. In many cases, these tools sync with your accounting software to ensure your forecasts are precise and use the most up-to-date information.

Final Thoughts

Cash flow is an important measurement of your business’s financial health. These tips can help improve your cash flow so that your business can better weather storms and work towards achieving your goals.

To learn more about how we can help with your small business cash flow needs, click here to schedule a consultation.

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