Cash flow is the lifeblood of any firm, revealing where and how much money is moving across the organization. Cash flow displays your organization’s financial health and sustainability from the moment you make that money to the moment it leaves your company.
A positive cash flow indicates that you earn more than you spend and have sufficient cash on hand to pay everyday expenses, invest for growth, and manage any unexpected company needs.
A negative cash flow, on the other hand, is when you spend more than you receive, leaving you unable to pay your staff, replace inventory, and cover monthly obligations to keep your business functioning!
Small business owners need cash flow management because it allows them to set budgets and make educated decisions by avoiding financial risks. It’s also a great place to start recognizing your company’s capacity to meet financial obligations and operating expenditures, as well as develop a positive credit score for potential lenders and investors.
This post will discuss 11 cash flow techniques for small business entrepreneurs. These tried-and-true solutions are provided by a CFO who assists small businesses and content creators in making sound financial decisions in order to reach their financial objectives!
11 Cash Flow Strategies For Small Businesses
Not sure where to begin with your cash flow strategy? Here are 11 tried-and-true cash flow tactics to help you improve your cash flow management right away!
1. Create An Emergency Financial Reserve
Everyone and every business will face tough times and bad weather. Those who emerge unhurt, on the other hand, do something different.
They set aside money for an emergency cash reserve, often known as emergency funds.
Emergency reserves are a source of cash that can be used in times of need. When things go wrong, they can assist relieve financial stress. Consider this: You have a $500 loss in your firm due to ruined products. You don’t have to cancel orders or sell equipment to order replacements when you have an emergency fund! You can just withdraw cash from such accounts!
2. Payments And Invoicing Should Be Automated
Small business entrepreneurs frequently find themselves pressed for time or overlooking crucial tasks on their to-do lists. You can solve both of these issues by automating payments and invoices.
Automating these processes saves labor and time while guaranteeing that nothing is overlooked. When you don’t put off sending invoices, you increase your accounts receivable turnover. Furthermore, automated invoicing and payment methods are excellent corporate assets that attract investors looking for well-organized enterprises!
The following are some of the best automation tools:
- Wave
- PayPal
- Zoho Invoice
- Square
- Invoice Home
- Paymo
3. Provide Early Payment Discounts
I already stated “accounts receivable turnover.” This is just another excellent technique to boost that ratio! Offering discounts for early payments from consumers allows you to swiftly inject cash into your firm, enhancing cash flow. This is evident in a number of critical KPIs for small firms!
However, providing discounts offers additional advantages. It draws customers and makes your service or product appear more affordable. Because you reward their purchasing process and make it a nice experience, this can have a domino effect as your customer base grows.
4. Strategically Forecasts Cash Flow
Most businesses are not evergreen, and their income and expenses fluctuate over the year. Some of us may see a massive revenue inflow during the holiday season as more customers buy gifts, while others may see an increase in certain menu items at different periods of the year.
Creating a strategic cash flow projection enables firms to efficiently manage resources, get finance when needed, and overcome unanticipated financial issues. Furthermore, it can assist you in setting realistic expectations and providing more context to financial KPIs in order to present a true picture of your company’s success.
5. Collaborate With A Chief Financial Officer
Cash flow issues can come as a rude and unpleasant surprise. However, they are rarely that.
Cash flow issues compound over time and are sometimes missed while you are preoccupied with day-to-day business operations. That is when you should appoint a Chief Financial Officer!
CFOs contribute financial management knowledge, providing insights into managing cash flow, spending reduction, and revenue growth. They create complete financial strategies that are suited to the company’s needs, allowing for better cash flow planning, risk mitigation, and development potential.
These professionals will also set up financial measures and reporting systems for your company, allowing you to make more informed decisions. Their expertise in obtaining finance, managing investments, and navigating regulatory compliance guarantees financial stability and long-term success!
6. Reduce Your Expenses
- There are just two technical approaches to boost your cash flow:
- Increase your profit margin or assets, namely your cash inflow.
- Reduce your costs and liabilities, particularly your cash outflow.
Cutting your expenses quickly enhances your cash flow. Cutting costs like as overhead, materials, or labor will help you keep more cash on hand. Furthermore, by decreasing wasted resources, it boosts your profit margins and operational efficiency!
When you save more pennies on the dollar as profit, you may reinvest it back into the business for growth, allowing you to achieve your business objectives faster. Cost-cutting strategies can provide a financial cushion that can assist you in weathering financial storms, ensuring that your organization can continue to operate and pay financial responsibilities even when revenues fall.
7. Streamline Inventory Management
This is a proactive cash flow management method that optimizes the balance between customer needs and inventory levels, resulting in lower holding costs.
Creating an inventory dashboard, automating orders to vendors when inventory levels are low, and stocking up before expected sales peaks can all help to streamline your inventory management. This allows you to save money, limit cash outflows, and keep your operations running smoothly!
8. Expand Your Payment Platforms
Diversifying the payment methods available to your consumers is a sensible and underutilized tactic for increasing your cash flow. This simplifies the process for them while also ensuring that you don’t have a large payment lag (cash inflow).
Small firms that use an automated credit card acceptance technique generally receive payments faster, avoiding financial issues later!
For example, you can diversify your payment options by providing a mix of:
- Paypal,
- Payoneer,
- Apple Pay,
- Google Pay,
- Mobile wallets,
- Debit and credit cards,
- Bank transfers, and
- Cash
9. Determine When You Will Break Even
When your total expenses equal your total income, you’ve reached breakeven, which implies you’re neither making nor losing money. This is a fantastic position for new enterprises since it signifies your company can continue to run and that there is possibility for growth and profit.
Understanding when your cash outflow equals your cash inflow is a cash flow technique that can revolutionize the way you run your business and help you flourish!
10. Negotiate Beneficial Payment Conditions With Your Vendors
The cash outflow, or money that leaves your organization, accounts for the other half of cash flow management. Payments to vendors are the most common source of cash outflow for most small businesses.
If you have an excellent working relationship with your vendors, don’t be hesitant to request a longer payment window. This can range from 60 to 90 days in some circumstances!
Instead of cashing out your inflow, you can reinvest money in the firm and develop without falling behind on payments. If you experience a financial setback, attractive payment terms can help you and relieve some of the tension, so you don’t have 10 streams of outflow and no way to repair the harm.
11. Reduce Underperforming Assets
If assets are not operating as well as they should, they can easily become liabilities. Extra and underutilized assets squander important resources such as money, space, and attention, while raising needless expenditures such as maintenance, overhead, and operational costs.
By selling these assets, you can pump capital into your organization and boost liquidity. However, you also cut your cost structure and increase profitability, which improves measures like return on assets (ROA) and return on investment (ROI), appealing investors and lenders!