27 Surefire Ways to Improve Cash Flow for Small Businesses
27 Surefire Ways to Improve Cash Flow for Small Businesses
- It allows a business to meet its financial obligations
- It helps a business grow
- It provides a buffer against unexpected events
- It helps businesses maintain financial stability
- Late payments from customers
- High accounts receivable
- High inventory levels
- High operating costs
- Seasonal fluctuations
- Limited access to financing
- Do a cash flow analysis first
- Do a cash flow forecast
- Speed up payments from your customers
- Manage your expenses
- Liquidate excess stock and order wisely
- Get help from your accountant or bookkeeper
- Encourage customers to pay early
- Invest surplus cash
- Refine your marketing strategy
- Improve your online presence
- Bundle your sales
- Be responsive to customer inquiries
- Check your accounts payable terms
- Lease, don’t buy
- Form a buying cooperative
- Send invoices out immediately
- Use electronic payments to get paid faster
- Tighten terms of credit
- Secure business loans or lines of credit
- Charge a late payment penalty
- Add new services or products
- Streamline your business processes
- Raise prices
- Review your business plan regularly
- Try crowdfunding
- Put extra cash to work
- Try coworking spaces instead of renting an office space
A 2022 report by global small business platform Xero has found that 92 percent of Australian small businesses experience at least one month of negative cash flow per year with cash flow challenges affecting the growth and operations of at least nine in ten small businesses.
Are you a small business owner struggling to keep cash flowing? Cash flow is essential for any business, but especially for small businesses that may not have the same resources as larger companies. In this blog post, we will explore practical tips and strategies for improving cash flow and keeping your business financially stable. From managing expenses to seeking out new revenue streams, we’ll cover everything you need to know to keep your business afloat, especially during tough times. Whether you’re just starting out or looking to take your business to the next level, these tips will help you stay on top of your finances and ensure long-term success.
Why is having a healthy cash flow important?
Cash flow is important for businesses because it determines a business’s ability to pay its bills, make investments, and grow. A positive cash flow means a business has more cash coming in than going out, while a negative cash flow means a business is spending more than it’s making. Without sufficient cash flow, a business will struggle to pay its bills, meet payroll, and make necessary investments to grow. This can lead to financial instability, and in the worst cases, bankruptcy.
Benefits of healthy cash flow
Here are some reasons why cash flow is so important for businesses:
It allows a business to meet its financial obligations
A positive cash flow means a business can pay its bills, make payroll, and cover other expenses when they’re due.
It helps a business grow
A positive cash flow allows a business to invest in new equipment, expand its operations, or hire new employees.
It provides a buffer against unexpected events
Having a positive cash flow allows a business to weather unexpected events, such as an economic downturn or a sudden loss of a major customer.
It helps businesses maintain financial stability
Positive cash flow allows businesses to maintain financial stability and avoid financial difficulties such as defaulting on loans.
In summary, cash flow is important for businesses as it determines their ability to pay bills, make investments, and grow. It helps businesses to meet their financial obligations, invest in growth, weather unexpected events, maintain financial stability and make better financial decisions.
What are the 3 types of cash flow?
Before we dive into tips and strategies for improving cash flow, it’s essential to understand the three different types of cash flow:
1. Operating Cash Flow
This type of cash flow refers to the cash a business generates from its day-to-day operations. It includes cash received from sales and other revenue-generating activities, as well as cash used for expenses such as wages, rent, and inventory. Operating cash flow is important because it shows a business’s ability to generate cash from its core operations and pay for its day-to-day expenses.
2. Investing Cash Flow
Investing cash flow refers to the cash a business uses or generates from its long-term investments, such as buying or selling property, equipment, or other assets. This type of cash flow is important because it shows a business’s ability to generate cash from its investments and grow its assets over time.
3. Financing Cash Flow
Financing cash flow refers to the cash a business generates or uses from its financing activities, such as issuing new stock or bonds, or borrowing money. This type of cash flow is important because it shows a business’s ability to raise capital and finance its operations, growth and investments.
Overall cash flow is important for a business as it tells how much cash is available for the operations and investments of a business, and ultimately its survival and growth. A positive cash flow means a business has more cash coming in than going out, while a negative cash flow means a business is spending more than it’s making.
Why do small businesses experience cash flow issues?
Did you know that over half of all businesses in Australia are worried about how they’re going to pay their bills? Small businesses often face cash flow issues and are worried about how to keep operations running due to several reasons, some of the most common ones are:
Late payments from customers
Small businesses often rely on a small number of customers for a large portion of their revenue. Late payments from even one customer can cause cash flow problems.
High accounts receivable
When a business allows customers to pay on credit, it can lead to a high amount of accounts receivable, which can cause cash flow problems.
High inventory levels
Carrying too much inventory can tie up a significant amount of cash, making it difficult for a business to meet its financial obligations.
High operating costs
Small businesses often have high operating costs that can be difficult to manage, especially if sales are slow. This can include overhead costs like office space rent, utilities, insurance, etc.
Some small businesses may experience seasonal fluctuations in sales, which can cause cash flow issues.
Limited access to financing
Small businesses may have limited access to financing, making it difficult for them to manage cash flow.
It takes careful planning and management to ensure business cash flow remains positive. As you’ve seen above some of these factors may be out of your control, but there are still some strategies that can help small businesses improve their cash flow even during turbulent times.
How can you increase cash flow? Here are 27 ways
With the ever-changing global economy, it’s important now more than ever to recognise the need for effective and efficient management of money. Whether you’re a small business owner or an established organisation, managing your cash flow is key in navigating through this period of uncertainty and ensuring that your operation can remain afloat. So, how can you increase cash flow back into your business? Here are a few cash flow strategies you can start doing now.
1. Do a cash flow analysis first
The first step in improving cash flow is to do a cash flow analysis. This involves looking at your income, expenses, debts, and investments over a certain period of time (usually 1 month or 1 year). By analysing your current financial situation, you’ll be able to identify areas where you can optimise your cash flow and take steps to improve it.
The analysis should include things like total income (cash and non-cash) over the period, total expenses over the period, total debt payments made during the period and investment returns received during the period. Once you have a complete picture of your finances, you can identify areas for improvement.
2. Do a cash flow forecast
A cash flow forecast is a tool that helps you predict how much cash will be coming in and going out of your business so you can plan accordingly. Cash flow forecasting also allows you to identify areas where it’s possible to increase revenue or cut costs, as well as anticipate any large payments so you can adjust cash reserves accordingly. There are available cash flow forecast tools online to help you get started.
3. Speed up payments from your customers
It’s important to make sure that you’re getting paid as quickly as possible. Make sure that your customers know when payments are due and encourage them to pay on time, or even offer discounts for early payment. You can also consider offering payment plans or incentivising customers with loyalty programs.
4. Manage your expenses
It’s important to keep a close eye on your expenses. There are several ways a business can reduce costs without sacrificing quality, such as cutting back on unnecessary spending and renegotiating supplier contracts. You can also consider outsourcing certain tasks to save money on labour costs. It can also be achieved by increasing efficiency, reducing overhead costs, making smarter spending decisions, and implementing a cost-cutting plan. One cost-saving tip that’s popular with many startups and small businesses is signing up for coworking spaces instead of renting their own office space. This gives them the same amenities of an office space without having to shell out a huge amount of money.
5. Liquidate excess stock and order wisely
It’s important to keep a close eye on your inventory. If you’re holding onto excess stock and unsold inventory, consider offloading it for cash. For future orders, be sure to order only what you need and try to negotiate better terms with suppliers so that you pay later rather than sooner.
6. Get help from your accountant or bookkeeper
If you’re having trouble managing your cash flow, or if it’s been an issue in the past, then consider getting help from a professional. A professional accountant or bookkeeper can help you develop strategies to improve your cash flow and ensure that you’re making smart financial decisions. You can also invest in online accounting software if you are unable to hire an expert.
7. Encourage customers to pay early
Another way to increase cash flow is to encourage customers to pay early. Offer discounts or loyalty points for customers who pay ahead of the due date, and make sure that payment terms are clearly outlined in your invoices. This will help ensure that you receive payments on time.
8. Invest surplus cash
If you have any surplus cash, consider investing it in assets that will generate a return. This could include stocks, bonds, real estate, or other investments that are likely to produce a steady stream of income over time. By investing wisely and diversifying your portfolio, you can ensure that your business can benefit from long-term growth in the future.
9. Refine your marketing strategy
Marketing is essential for any business and can make all the difference in driving more sales. Consider refining your strategy to focus on high-value customers and find ways to increase conversions through targeted advertising. This will help ensure that you’re maximising every marketing dollar spent, resulting in increased cash flow.
10. Improve your online presence
Having an online presence is essential for any business. Make sure that your website is up-to-date, easy to navigate, and optimised for search engine results. Invest in social media campaigns and consider utilising other digital marketing channels such as email or retargeting ads to increase brand recognition and boost sales.
11. Bundle your sales
Offering bundles or packages can be a great way to increase sales and improve cash flow. By bundling several products together and offering discounts, you can encourage customers to buy more at once and maximise every sale. This will help keep your cash flow healthy as you’re able to make larger transactions in less time.
12. Be responsive to customer inquiries
One of the most important aspects of running a successful business is having good customer service. Whenever customers have questions or concerns, be sure to respond as quickly as possible and provide helpful information. This will go a long way in creating a positive reputation for your business and building loyalty among customers. You’ll also be more likely to close the sale if you reply quicker than your competitors. You can choose to sign up for a virtual office that offers professional telephone answering services, so you can have a dedicated virtual receptionist to answer to any questions your customers may have.
13. Check your accounts payable terms
It’s essential to review your accounts payable terms and make sure you’re not paying too soon. Negotiate longer payment terms with suppliers when possible, as this will give you more time to generate the necessary funds before making the payment.
14. Lease, don’t buy
Buying assets can be expensive and can put a strain on your cash flow. Instead, consider leasing items that you need to run your business, such as equipment or vehicles. This will help free up cash so that you don’t have to tie up large amounts of money in fixed assets. One of the things you can choose to lease than buy is a serviced office. With the astronomical rise in real estate prices in Australia, it could be more practical for smaller businesses to rent office space instead of buying their own.
Suggested reading: How Much Does Coworking Cost In Brisbane? (2023 Guide)
15. Form a buying cooperative
If you know other small businesses, consider forming a buying cooperative. This will allow each business to buy in bulk at discounted prices and split the cost of items amongst the group. This could be a great way to reduce costs and improve cash flow for all involved.
16. Send invoices out immediately
Make sure to send out invoices immediately after a transaction occurs. This will help ensure that customers remember to pay on time and avoid any unnecessary delays in your cash flow.
17. Use electronic payments to get paid faster
Encourage customers to pay via electronic payment methods such as debit and credit cards, PayPal, or Apple Pay. This will help speed up the payment process and make it easier for customers to pay you quickly. Electronic payments have greatly improved the speed in which businesses can receive payment especially post-pandemic, and that is something you should maximise. In fact, New Zealand invoices were paid in 23.6 days across the first 9 months of 2022, which is 2.9 days sooner than in the pre-pandemic times of 2019, thanks to newer payment technologies available.
18. Tighten terms of credit
Make sure to establish clear terms of credit and ensure that customers are aware of them. Strictly enforce late payment fees for customers who don’t pay on time and keep track of any outstanding debts. This will help you stay on top of your accounts receivable and maximise cash flow.
19. Secure business loans or lines of credit
Having access to additional funds can be a great way to improve cash flow. Consider applying for loans or lines of credit from banks, investors, family members, or other organisations that may be willing to lend you money. Just make sure that you understand the terms and conditions and only take out what you need.
20. Charge a late payment penalty
If customers don’t pay their invoices on time, then charge a late payment penalty. This will help encourage customers to pay their bills promptly and ensure that payments are not delayed.
21. Add new services or products
Adding new services or products to your portfolio is a great way to boost sales and improve cash flow. This could involve introducing a new product line, offering discounts on existing products, or expanding into new markets.
Take the time to study your competitors and find ways to stand out from the pack.
22. Streamline your business processes
Take steps to streamline your operations and make them as efficient as possible. Look for ways to automate manual processes or outsource tasks that don’t need to be done in-house. This will help you save time and money, while freeing up resources to focus on more important activities. In fact, 66% of Australian small businesses say automation is now essential for running their operations.
23. Raise your prices
If the customer demand is there and your competitors are charging more, consider increasing your prices. This can help to improve cash flow if done correctly, as long as you don’t lose too many customers in the process.
24. Review your business plan regularly
It’s important to review and update your business plan regularly to make sure it reflects current market conditions. This will help you stay on track and make sure that you’re focusing on the right goals to improve cash flow.
25. Try crowdfunding
If you need additional funds, consider crowdfunding as an option. This can be a great way to raise money from a large number of people in a very short amount of time. Just make sure that you understand the rules and regulations around crowdfunding before getting started.
26. Put extra cash to work
Look for ways to put idle cash to work. This could include investing in short-term savings accounts, certificates of deposit, or treasury bills. This will help you make the most out of your available funds and improve your overall cash flow.
27. Try coworking spaces instead of renting an office space
Instead of signing a long-term office space lease, consider utilising coworking spaces instead. This can be a great way to reduce overhead costs and improve cash flow. Coworking spaces like Mobo Co offer flexible plans so you’re not locked into a long-term commitment and you can scale up or down depending on the needs of your business.
Suggested reading: Who Uses Coworking Spaces? Top Professionals and Industries Revealed
These are just some of the ways that you can improve cash flow of your small business. Take the time to evaluate your current situation and create a cash flow management strategy that works best for your needs. With the right approach, you can make sure that you’re managing your finances effectively and staying on track with growth.