Being a small business owner can be a tricky business, and unless your company is swimming in free cash, you might need to find ways to boost your cash flow.
Does it seem like there’s always money going out of your business before there’s money coming in? If that sounds familiar, you’re going to need to learn how to give your business a cash flow boost.
Even businesses whose sales and revenue are growing can run into cash flow problems. If the money they have to pay out leaves the business before the money they’re owed comes in, this will result in negative cash flow. It will also mean that the business may not be able to pay its bills and that can lead to bigger problems, such as bad credit.
If you’re looking for tips on how to boost your cash flow, then look no further.
How to boost your cash flow
1. Reduce your outgoings
Without sounding like Captain Obvious, this is the first thing to look at if you’re trying to increase your cash flow and possibly the most effective tactic. Take the time to dig into your expenses and find any non-essential outgoings that can be reduced or stopped completely. They’re there, you just have to find them!
2. Keep on top of your books
Making sure your accounts are up-to-date is the best way to identify potential areas to improve. Tidy up those financial statements and get a firm grip of what’s going on with your money. Using cloud accounting software like Xero or Quickbooks can help you keep your information up-to-date making it easier to stay on track.
3. Practice regular cash flow forecasting
You can avoid running into cash flow problems by investing in good forecasting software such as Float. Sync it with your accounting software and use it to help you monitor and maintain your cash position. If you are trying to expand or secure investment funding, use your cash flow forecast supported with reports from your accounting software to prove your business’ viability. Demonstrate positive cash flow, and show potential investors that your business is not a financial risk.
If you’re looking for a quick injection of cash into your business, you could consider taking out a short-term business loan. This will give you the funds you need to raise and can be paid off relatively quickly so no nasty long-term debt to worry about.
4. Buying vs hiring?
Making a large payment for an expensive item outright could seriously damage your cash flow. Tying up your money in a single purchase means you’ll have less available cash to spend on other things in your business. Although not considered the most cost-effective, long-term option, think about leasing or hiring expensive equipment, supplies and real estate as a way of preserving your immediate cash flow. Or, if you’re certain you want to buy, check if there are finance options available for your purchase and consider taking advantage of those instead. This way, instead of paying out a huge lump sum, you’re making smaller incremental payments each month which will be better for your cash flow. There’s an added benefit from choosing finance options over hiring too: you will be the proud owner of your purchase at the end of your repayments.
5. Streamline your inventory
For small businesses, holding on to large amounts of stock that aren’t moving anywhere can be damaging to your cash flow. They can tie up cash that could be invested in other areas of your business. Healthy stock control means you’re only spending money on the amount of inventory you know you are going to sell. Try to be practical, not emotional, when it comes to deciding what is and what isn’t selling in your business.
6. Review your pricing
Are you selling your product at the best price? Or perhaps ‘optimum price’ is more accurate here. Increasing your prices may be a little daunting, and many business owners fear sales will fall as a result. But, do you really know how much your customers are willing to pay for your product? Experiment (within reason of course) and find that sweet spot of where your perfect price point is. It may be higher than you think! There’s no way to know until you explore different options, but you might be nicely surprised.
7. Give incentives for large orders
Some business owners are reluctant to start offering discounts on their products fearing it will somehow devalue them to a potential customer. However, you could see larger orders upfront if you’re clever with the amount of discount you’re offering, on which products and at what price. Offering an attractive 10% discount on orders over X amount, for example, could see your customers making more substantial purchases. This will help you move more stock and increase revenue at the same time.
8. Prompt invoicing
Time really does equal money in this case. Prompt invoicing means you’ll see your receivables faster. Ensure your invoices are easy to read with your terms outlined clearly, make your due date clearly visible and remember to include any late payment fees in there too. Offering a discount to customers who make early payments for goods or services could also work in your favour to encourage prompt payments.
9. Credit check your potential customers
This is something not every business owner will be comfortable doing, but well worth it to avoid late or non-payments hurting your cash flow. If a customer isn’t paying upfront and has poor credit, it’s probably safe to say that you’ll feel the repercussions further down the line when it comes to chasing invoices. Better to be upfront from the beginning to carve out healthy business relationships.
10. Open a high-interest savings account
Use high-interest savings accounts for saving cash. If you’re in a position to start putting away cash regularly, select a high-interest account to make sure you’re getting the best interest rates on the money you’ve saved.
11. Get a business credit card
You could consider using a business credit card for business purchases. Most cards waive interest on any spending if you pay the money back in full by the due date on your monthly statement. Put simply, this means you could make a purchase in one month and pay for it in the next month, without incurring any interest. Remember though, a business credit card will give you a credit limit based on your business’s creditworthiness and you should always pay the full balance to avoid any penalties which can damage your business’ credit score.
12. Become a good negotiator
It goes without saying that paying bills on time is best business practice. Your business’ reputation is too valuable to risk by making late payments. However, business owners tend to push payments close to the due dates to retain available cash in the business for as long as possible. This practice can help maintain good cash flow. The general rule is: get paid as quickly as possible, hold on to your cash as long as you can and only pay your bills when necessary.
But, could you potentially pay your bills earlier if it meant getting a discount? Talk to your suppliers and ask about prompt payment discounts, you might find that they provide substantial concessions for making early payments. Scenario planning in your cash flow forecast will help you model those early payments into your forecast so you can weigh up your potential saving.
Practice friendly, open communication with your suppliers. That way you’ll have more of a chance to negotiate better payment terms with them.
Positive, stable cash flow comes from a business running efficiently. Make the time to review and update your business plan regularly and remember to look at your business as a whole, not just the numbers. Think holistically about where you can make improvements and streamline your service from HR to marketing to acquisition and product. This way, you‘ll be able to spot areas that could be improved to generate more cash for your business.
Always be one step ahead by looking at what trends are on the horizon in your industry and use that knowledge to best place your business to benefit from them.
Work smarter, not harder.
Boosting your cash flow isn’t a quick or an easy task. By building these 12 ways to boost your cash flow into your business and making them a habit, you’ll have begun the journey to being a happy, successful, cash-flow-positive business owner. Use these points to get inspired to come up with your own healthy cash flow habits.
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