How To Increase Cash Flow In Small Business

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“How To Increase Cash Flow In Small Business” gets searched hundreds of times a month on Google, and that doesn’t come as a surprise because cash flow is crucial for survival in business, as small business owners are well aware.

Without a steady stream of cash coming into a business, it’s tough to keep the lights on – let alone turn a profit.

The financial position of many small business owners is undoubtedly something that is consistently on their minds.

Cash flow issues are one of the most common problems they have to deal with and the main reasons companies fail.

To avoid becoming a statistic and one of the countless businesses that close their doors each year – any business operator needs to remain aware and in control, as best they can, of the stream of money coming in and out of the business.

This article will explore various creative ideas on how small businesses can increase their cash flow, feel more secure in their operation and, hopefully, stop worrying so much about money. 

What Is Cash Flow?

Cash flow is the term used to describe the movement of money. It is as simple as that. We could overwhelm you with technical accounting jargon; however, let’s keep it simple.

Cash Flow = Movement Of Money

Any questions? Well, read on to get more insights on how to improve your cash flow. 

How Does Cash Flow Affect Small Businesses?

Cash is to a business what oxygen is to humans. It is life!

Without oxygen, we cannot live, and without cash, a business cannot survive.

To survive in business, it is critical to know how to monitor & manage cash flow and what story the business’s cash flow is telling. 

There are two types of cash flow – positive and negative.

Positive Cash Flow

Positive cash flow means that more money is coming into a business than the business is paying out in expenses.

A positive cash flow is critical for a business’s long-term survival. It also allows for more flexibility to make longer-term strategic decisions since daily expenses are already handled, and it also provides excess funds that could be reinvested into the company.

This investment could allow for many things, such as the expansion of a location, new staff hires, a marketing campaign for new customers, and a consultant to guide how a business can optimise or reduce its cost, among many other things. Positive cash flow is always a good thing. Negative cash flow, on the other hand, should be managed appropriately.  

Negative Cash Flow

If you have a negative cash flow, this means that on a daily, weekly, or monthly basis etc. (whatever period you’re using to measure your cash flow) – if it is negative, this means that you’re, essentially, losing money.

More money is going out than is coming in. 

When a business has negative cash flow, it can only stay open for as long as it can access cash because the company isn’t financially sustaining itself through its transactions.

Consider a situation where a company has negative cash flow yet relies on cash on hand (cash in the bank), or even worse,  on loans or short-term financing. In this case, doing so is risky because, unless the company has positive cash flow, the owner will eventually start to lose money.

Note – take this with a grain of sand because there can be circumstances where negative cash flow is acceptable, but businesses should aim for positive cash flow.

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Here Are The 7 Best Tips To Increase Your Cash Flow

Below are our ideas on how you can boost your cash inflows or reduce spending.

1. Invoice Earlier

Customers tend to pay after receiving an invoice, so it makes sense to issue them earlier. Leading accounting software such as MYOB or XERO allows you to invoice online immediately on completing a job or dispatching goods. You can also send invoices conveniently via email and schedule recurring invoices for regular customers. If you’re unsure how to do this, the Accounting Centres team can help you make the most out of your accounting software with either in-person or virtual training.

2. Liquidate Your Excess Stock

When you purchase stock, you are tying your money up. Often, thousands, if not hundreds of thousands of dollars, in stock are just sitting on your shelves. If you need cash in a hurry, exploring how you can liquidate your excess stock is one way to increase your cash flow and make money available for you and your business. 

Working to liquidate excess stock is a great way to increase your positive cash flow. Two simple ways of doing this providing discounts on purchases through a price reduction or bundling.

3. Review Debtors’ Report

Routinely review account receivables, so you know who owes you and how long their account has been outstanding. Use this information to set or revise your trading terms. You could consider offering incentives like early payment discounts or discourage late payments through penalty charges.

Taking full or partial payment upfront could be an effective strategy for new or slow-paying customers. You might also offer additional payment options, including mobile and online payments, to make it easier for customers to settle their invoices.

Most accounting software will have in-built Account Receivables Ageing Reports you can quickly run.

4. Analyse Spending

To cut down on unnecessary expenditures, you need to know your regular business costs. Look carefully and ask yourself whether you’ve shopped to get the lowest costs, particularly for essentials like the internet, utilities, telephone and banking facilities. This spending analysis could highlight opportunities to reduce your spending and, in turn, increase your business’s cash flow. 

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5. Spread Costs

For those with reasonably consistent monthly cash inflows, it may be worth spreading the costs of more significant purchases — like laptops, vehicles and items of equipment — through leasing instead of paying for them outright. This is a great way to make your cash flow position more predictable, control costs and avoid large cash outflows.

6. Avoid Late Fees

Settling your debts on time saves you from late payment penalties. You could try to negotiate better payment terms too — say from 30 to 60 days — so you can hold onto your cash for longer. If your suppliers offer early payment discounts, Ensure you also take advantage of your suppliers’ offer on early payment discounts.

When you enter bills into cloud accounting software like Xero, you can set reminders and schedule payments so they’re settled on time. You can also keep track of bills and analyse changes over time to know when costs are going up.

7. Hire Offshore Talents

Increase your cash flow by decreasing your expenses and outgoings. People who work outside their home country are referred to as offshore talent. 

They are frequently highly skilled professionals with specialised knowledge or skills. These workers could be in another country or live in an area without enough local job opportunities.

Consider outsourcing your staff. There are legitimate and easy-to-sign-up online job boards where you can look for verified profiles. 

You might be surprised that many talented and dedicated professionals are ready to help you streamline your business for a fraction of the cost.

How To Increase Cash Flow In Small Businesses?

As you can see, many strategies can be explored to increase the cash flow of a small business. If you want help implementing some of these measures or would like to speak to an experienced and professional accountant in Albany, WA, who knows how to turn a business’s cash flow around – reach out to the team from The Accounting Centre. 

The Accounting Centre offers a risk-free, no-obligation complimentary appointment where we can get to know each other and explore if it might make sense for us to work together. Enter your contact details down below and we’ll be in contact.

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