If you are running a small business, then by now you must have realized how difficult it is to keep track of the cash flow. In fact, the last year remained a really difficult one for many small business owners. And I am sure, many of them almost felt like giving up totally! However, the fact is it is not so difficult to improve small business cash flow, if you can follow the right processes.
Track and Record the Entire Process To Improve Small Business Cash Flow Quickly!
If you can’t maintain records of it, you can’t control, boost or improve your small business cash flow. There are numerous accounting systems that help you track your cash flow, such as QuickBooks, Wave, Expensify, and others. In fact, a cloud-based accounting system makes it much simpler to keep track of the entire accounting process.
The best approach, of course, is to regularly monitor the receivables and payables of your business accounts. This way you get to know how much money is coming in and where you are spending it the most.
Ideally speaking your small business receivables usually comprise payments that you receive from buyers/customers, bank interest, money from asset sales, loan proceeds, etc. And your business payables may include rent paid for office space/warehouse, employee salary, cost of maintaining an inventory of raw materials or finished goods, transportation, etc.).
So, you can see, how important it is to have an automated system that can efficiently manage your receivables and payable with a few clicks!
Few Practical Tips to Track Business Cash Flow
According to experts, while controlling cash flow, small businesses commit many basic errors. Some mistakenly assume that just once a year only during the budget time, they need to plan a cash flow estimate. Well, no, this is not a good idea!
You must plan a recurring 12-month forecast as well as consider the cash flow every month. For example, you can make a weekly cash estimate in difficult times, in case you worry about making the payment.
Your estimated cash flow is based on the statement of your previous cash flows. A good idea is, to begin with, an entire year cash flow statement if your small business has a seasonal flow of cash. Else, you can switch to three or six months of cash statement schedule, when your cash flow appears to be stable.
Based on the present cash situation, you can compare cash flow predictions on a weekly or monthly basis, with your current cash flow report. Then change your projections accordingly.
Don’t overlook the process thinking this isn’t your job! This is the typical mistake small business owners make. They believe “keeping track of cash flow is the accountant’s responsibility.”
The reality however is that CEOs can make things happen to improve small business cash flow. How? They must keep an eye on how their decision-making is impacting cash flow.
Reduce Expenses Where Ever Possible
If your business income is tight, or it seems to get worse, then you can look for avenues to cut back on your payables. Ask yourself is your rent too high? You can discuss a rent discount with your landlord if you are currently renting an office or retail space.
Also, consider whether you need to maintain an office, or can you switch to a virtual operation? This way you may save a lot on basic operating costs.
Do you read all the newsletters, journals, and magazines for which you pay? If not, then cancel a few subscriptions right now. Or perhaps you can save money by moving online to access the information.
Are you paying yearly membership fees to any club or organization? Do you actually profit from such membership? If the answer is a “No”, then don’t renew it.
And yes, another nice place to cut costs is your insurance policy. Check them out and do your own research to find out if a better deal is available at a lower premium. Chances are, you might stumble upon some cheaper insurance schemes with better facilities!
Review your Payment Process Carefully
This is possible if you use an automated payment system that lets you generate automated invoices, scheduled alerts, and electronic payments. Thus you can ensure that your customers get paid “2 times quicker!”
There are few more things you can try out to improve small business cash flow. For instance, you can request customers to pay an initial lump sum amount and then the balance when the project is completed. If the project is big, you can consider splitting it into phases and accept partial payment after each phase gets completed.
Also, you can work out better payment terms and think of incentivizing customers who pay early than the scheduled date. For instance, if you provide a certain service for which clients pay you monthly, then you can offer them an annual payment plan with a good discount.
Consider Your Small Business Debt Consolidation or Try to Negotiate Better
Do you owe money? Then don’t hesitate to speak to your creditors. They might be willing to negotiate a lower rate of interest or offer you longer terms of payment. This will surely help improve your small business cash flow.
During the COVID-19 pandemic, several lending institutions have come up with special initiatives to help distressed companies survive.
Consider Applying For a Line of Credit Even If You Don’t Need It!
If you face a cash flow crisis then trust business lines of credit or LOC to bail you out. The best part about LOC is that until you use the money, you don’t pay anything. And yet the safest time to get a line of credit is when you don’t need it!
Plan a Stock Clearance Sale
If you sell products that tend to go out of fashion or obsolete very quickly, then you can plan a stock clearance sale to get rid of that inventory, lying idle.
While the sale won’t make you rich overnight, but it can definitely boost your business income to a certain extent. Else you can also consider donating the merchandise. Discuss with your accountant if the donation will help in getting a tax rebate.
Sell Company Machinery or Supplies that You Don’t Need
Have you got supplies or resources that you don’t need anymore for your business, maybe a xerox machine or a typewriter which have become outdated now?
To help improve your small business cash flow, consider selling these. You may be able to raise cash flow by selling unused machinery on online platforms like Amazon or eBay. Even you can try to find local buyers interested in buying such surplus equipment at a reasonable price.
Rent Rather Than Buying New Machinery
Instead of buying it outright, consider leasing it if you are looking for new pieces of machinery, technology, or maybe a company car. That way, without spending much money upfront, you can get the most up-to-date models.
Consider a Price Hike If Possible
Do you think it’s been a long time that you raised prices simply because you are too scared of losing business? Such apprehension is understandable, considering the pandemic we are going through. And yet, it would be foolish to not take any action if your competitors have already raised prices!
And if you are lucky enough to belong to any of these Covid19 industries with great growth potential, then really you have no reason to worry!
Make sure you follow the proper pricing strategy to justify the price hike.
Invoice Factoring/ Financing Does Help if Done the Right Way
Lots of invoices piling up whose collection is uncertain? You can consider invoice factoring or financing in such a scenario but only after knowing how it exactly works. Most businesses apply it as a short term solution to get rid of the immediate cash crunch.
If you seriously aim to improve small business cash flow, then start the planning now. And then doing it all by yourself might seem an uphill task more so when you need to oversee other aspects of your business as well. Therefore, investing in good accounting software or hiring an expert to overlook the entire process can prove to be helpful in the long run.