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12 Ways to Increase Your Cash Flow

Published November 23, 2020 (last updated February 18, 2021) -
employer managing cash flow

Cash flow problems can plague businesses at all stages — whether start-ups or established brands. Insufficient cash flow can delay fulfilment, compound debt, jeopardise payroll, and even result in business failure. And it makes things more stressful for everyone — stress which can lead to rash decisions, costly mistakes, increased turnover, and diminished morale. Before your business faces a cash crunch, start to manage your cash flow more effectively now with these time-tested tips:

Note: The information in this article is for general information only. It should not be taken as constituting professional advice. Employsure is not a financial adviser. You should consider seeking financial advice from a certified professional.

Assess Your Cash Flow

Effective cash flow management requires proper planning and forecasting. Using your accounting software and realistic projections of your income and expenses, make monthly projections of your cash flow for the next six months. If your estimates fall close to or below your total costs, you’ll need to make some hard decisions now to avoid pain later. Develop a cash flow plan using these projections. Update both the projections and plan frequently to stay on top of new business and industry developments.

Save Extra Money

When you make more than what you projected, set that money aside in a business savings account. Savings can help you weather unexpected downturns and can help you avoid delaying fulfilment or vendor payments — or even reducing headcount in the event of financial downturns. When you make less than you projected, use the following methods to lower your expenses.

Cut Costs

Take a close look at your budget and trim all unnecessary expenses, no matter how big or small. Forget about that newspaper subscription and cut or eliminate the party planning budget. Renegotiate any vendor contracts whose invoices vary from month to month in favour of flat-rate pricing. And tighten your monthly budget as much as possible without sacrificing your revenue-driving initiatives.

Lease, Rather Than Buy, Equipment

Major purchases can tie up your capital. But if you lease production equipment, computing hardware, and vehicles, you may be able to free up much-needed cash. You can also write off your lease expenses on your taxes. A lower tax burden can help you preserve more of your working capital. However, leasing may costs over time due to factors like interest and borrowing costs, etc.

Liquidate Assets

Do you have equipment that’s not currently helping generate revenue for your business? Perhaps there’s production equipment that’s become obsolete as you’ve phased out particular product lines. Or maybe you have delivery vehicles that barely run any more parked in your lot. If the costs to sell are minimal and you can expect to net a decent amount, sell unused and old equipment to raise cash. If you sell them below their book value, you can also write the loss off on your taxes, which can offset business profits and further reduce your tax burden.

Invoice Clients Promptly

Send your invoice along with the completed work. Waiting a day or two delays your payday. And if you don’t do it immediately, it may get lost in the shuffle of your other business activities. Invoicing your customers in a timely fashion may increase your chances of consistent client payments and predictable cash flow. Consider even invoicing new clients as soon as they agree to purchase from you.

Offer Multiple Payment Options

Let your clients pay not only by cash or check — but by credit card, direct entry payments, wire transfer, PayPal, or mobile app, among other methods. Relying on just a couple of payment methods may result in delayed client payments and uneven cash flow. While you don’t need to accept every single form of payment (most small businesses don’t need to accept Bitcoin payments, for example), you should offer more than one or two ways to pay.

Follow Up on Unpaid Invoices

Don’t be hesitant to chase after the money you’re owed. Small businesses often cite unpaid invoices as a significant cause of their cash flow problems. But some business owners feel uncomfortable trying to get customers to pay. You can’t let that stop you from tracking down the money your business is owed. And if you are still uncomfortable discussing money with clients, consider hiring an invoicing processing service that can manage your accounts receivables for you.

Require Deposits on Large Orders

Requiring a percentage of your price upfront for large orders is not uncommon. Yet many small business owners — especially new ones — don’t take advantage of this practice. Doing so can provide your business with a much-needed cushion while you work to fulfil orders. And it can help you address future cash flow problems.

Incentivise Payments

Encourage your clients to make timely payments by offering discounts on current or future orders. You’ll need to run the numbers to ensure you’ll still be able to make a profit. But such deals can help improve your cash flow and engender customer loyalty to your business.

Obtain A Business Line of Credit

While it’s best to avoid debt if you can, you could obtain a business line of credit as a hedge against cash shortfalls. It may be more challenging to get one when you’re in the middle of a financial crisis, as lenders may reject your application as too risky based on your cash flow problems. So apply for a business line of credit now before you need one.

Evaluate Credit Applications Carefully

Make sure you’re careful about to whom you extend credit. Assess your clients’ payment history with you on small orders before extending them credit towards larger orders. Run a credit check and check references, to manage credit extensions. Don’t be afraid to deny a client credit based on red flags you see or establish stricter payment terms for clients you consider a credit risk.

Mastering these cash flow basics will stand you in good stead during periods of sluggish sales and broader economic downturns. Start using these strategies today to stay on top of your business’ cash flow and improve its overall health.

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Frequently Asked Questions

  • Why Is Cash Flow Important to A Business?

    Cash flow is the amount of money being transferred into and out of a business. A positive cash flow means there’s more money for a business to be able to pay for operating costs, wages and more.

  • What Is Good Cash Management?

    Good cash management ensures that business has enough cash to make day-to-day purchases they need.

  • What are the Benefits Of Cash Flow?

    The benefits of a positive cash flow mean you can:

    • pay your staff on time
    • make sudden but necessary purchases
    • re-invest in your business
    • pay other expenses
    • have money saved up for a rainy day

  • How Much Cash Flow Should A Business Have?

    It depends on your business and your business model, but a general recommendation is to have enough cash on hand to equal three- to six-months’ operating expenses.

  • What Are the Consequences of Cash Flow Problems?

    • Delayed payments to suppliers
    • Restricted growth
    • Potential for insolvency
    • Inability to pay staff wages
  • How Does Cash Flow Affect Small Businesses?

    Cash flow affects your small business as it impacts your ability to pay your suppliers and staff.

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