8 Tips on Improving Cash Flow for Small Businesses

Why do 82% of small businesses close? They don’t know have enough cash flow to keep the doors open.

It became apparent during the shutdowns of 2020 how little cash small businesses have on hand. Many can’t last a couple of weeks without income.

You have to manage your cash flow and keep cash on hand in order to stay afloat in good and bad times.

Do you want some tips for improving cash flow? Pay attention, because these tips could save your business. Read on to learn the top eight tips for monitoring cash flow and improving it.

1. Evaluate Your Income and Expenses

What you don’t know can hurt you and your business. Some business owners are scared of their finances, so they keep their heads in the sand.

That fear is overpowering, but the truth is that the more you know about your financial situation, the better.

Take a look at your income and expenses. You can create profit and loss statements that allow you to know exactly where your money is spent.

The next step is to make decisions based on that information. Are you spending money on services that you don’t use? Then cut those expenses.

Setting monthly budgets based on this information can help you manage your cash flow as well.

2. Incentivize on Time Payments

You’re not a priority for your clients. They have other things going on, so they may put off paying you. One large client that’s indifferent towards paying you can impact your cash flow.

You have to be firm with clients from the very beginning about payments. You can also make it easy for them to pay you, too.

For instance, you can accept multiple forms of payment. It’s possible to put clients on automatic payments.

You can also give a slight discount for advance payments. A client that pays six months in advance greatly improves your cash flow.

3. Pay Vendors on Time

Vendors also have similar prepayment discounts. You want to take advantage of them every chance you get. You can often save 15%-20% just for paying in advance.

It’s important to pay your vendors on time. They have late fees and penalties, which means you spend more than you should.

4. Expand Product Offerings

Did you find in your cash flow assessment that the real problem is revenue? There are a couple of ways to fix revenue problems. The first is to get more clients in the door.

The second is to expand your sources of income. For example, if you own a gym, you can offer online coaching to your services. This way, you’re not just relying on memberships.

You may have complementary products that you can sell at a discount. It’s possible to expand into new markets, too.

The possibilities are endless. You have to make sure that you offer a new product that your existing customers want and need. That will help you improve your cash flow immediately.

5. Apply For a Loan

If you’re having serious cash flow issues, you could apply for a business loan. It’s not ideal to create debt for your business, but you can leverage the debt to grow.

Be clear about the purpose of the loan and how it will help your business. A business loan can be used to purchase new equipment, enter new markets, increase your capacity, or hire a new employee.

Another benefit is that you establish your business credit. That can be a major advantage as you scale your business.

6. Manage Currency Risk

Do you do business in other countries? You probably noticed that your cash flow can fluctuate depending on what the exchange rates are.

Right now that’s a major concern because of inflation fears in the U.S. market. As inflation rises, the value of the dollar drops.

That means it will cost you more to purchase from suppliers in Europe and elsewhere in the world. If you charge customers in their currency, it adds less to your cash flow.

You can manage currency risk by getting the best exchange rates. Determine how currency fluctuations impact various parts of your business.

You might be able to renegotiate contracts or delay payments. You’re betting the situation improves over time, which helps you manage your cash flow and currency risk.

7. Organize and Update Your Financial Systems

Efficiency is incredibly important when it comes to improving cash flow. It’s critical to have a system in place for managing business money.

You may need to establish separate business accounts if you’re a sole proprietor. Accounting software can help you automate tasks and keep you on track with accounts payable and receivables.

You should review your finances on a monthly basis to ensure that you’re on track with your monthly budget.

8. Everything Is Negotiable

You have to treat every deal and contract as if they’re negotiable. You don’t need to accept the contract as is in order to proceed.

Every part of your business can change and every deal is negotiable. You’ll create favorable circumstances for your business.

That will help you improve your cash flow over time because you can lower your expenses, increase profitability, and set aside funds so you have cash on hand.

Options for Improving Cash Flow

Your cash flow is the life of your business. Improving cash flow can happen as long as you make a commitment to it.

Work on each tip in this article one at a time. You’ll experience better cash flow management and you’ll be able to rest easy.

Do you want more financial tips for your business? Head over to the business section of this site for more helpful insights.

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