Improving cash flow is an essential part of running a business – as even some of the most established businesses experience problems. It can even be an issue for businesses that are growing and profitable, as their cash flow can experience disruptions from the expansion.
Cash flow is the movement of money in and out of a business, which is not the same as profit. Businesses can often be profitable (on paper), but then struggle with their cash flow, and actually suffer from a negative cash flow. Calculating the correct working capital can be a good way to take a temperature reading of a business and improve cash flow.
According to Zippia.com, 82% of businesses fail due to cash flow problems, and 29% fail due to simply running out of cash. The phrase “cash is king” is clearly still relevant, and improving your cash flow, no matter the success of your business is a necessity.
Photo credit: Zippia.com
To improve cash flow, there are multiple methods such as regulating finances, forecasting your cash flow, and managing your finances correctly. You can even take a look at our cashflow funding products which could help you find a solution.
Here are 11 ways that you can improve cash flow in your business.
1. Cash flow forecasting
Cash flow forecasting is an effective way to manage cash flow and ensure that you have proper oversight. A cash flow forecast is essentially a demonstration of what your cash balances will be in future, and will allow you to navigate your business through times of uncertainty, and also know the right time to scale.
This will allow you to predict when your business might need funding, when to save, and when you can afford to spend more, therefore keeping on top of your cash flow.
You can find a free cash flow forecast spreadsheet on American Express’s website.
2. Effective invoicing
Customers not paying on time is a frequent pain point for businesses and can be incredibly damaging to cash flow.
Creating a systematic process for payments, specifically overdue payments, can be an effective strategy to improve your cash flow. This could include reminder emails, phone calls, and even certain penalties if invoices are late. Offering discounts on early payments is also a good way to push customers to pay on time.
At Rise Funding, we also have access to invoice financing, which is a viable option if you are struggling with cash flow from unpaid invoices.
3. Cash flow training
Members of your team might have more insight into your cash flow than you do. Training your purchasing department or sales teams on the importance of cash flow management could be essential to the prosperity of your business.
You can also train your teams on cash flow forecasting. This way, you’ll be able to make sure that your cash flow forecasting is kept consistent across the business.
4. Leasing assets
To many financially savvy business owners, the idea of leasing, or purchasing on credit instead of buying and owning seems counterintuitive.
But when it comes to cash flow, leasing an asset can be an effective strategy. Leasing involves paying in small, consistent amounts, which can be easier for cash flow, instead of one large purchase.
It also means that the asset can be dropped if the business demands it, and lease payments are also a business expense, which means they can be included in your taxes.
5. Inventory management
Checking your inventory consistently can also help you avoid potential cash flow pitfalls. Inventory that isn’t selling can drag a business down, and overstocking or selling out can cause other problems.
Efficient management of inventory can help you avoid capital becoming stuck.
6. High-interest savings accounts
Having more cash on hand is a simple but effective remedy to some cash flow issues. Keeping your cash in a high-interest savings account will also give you liquidity that increases each year.
Here is a list of accounts with the highest interest rates currently available.
7. Decrease spending
Tweaking your spending slightly can sometimes be all that’s needed to solve cash flow problems.
For example, if you feel like you are paying too much to your suppliers, then you can negotiate with them to see if you can agree on longer but cheaper payment terms.
Watch your business expenses too, as costs can often spiral out of control. Look for more cost-effective solutions for each part of your business to help improve your cash flow.
8. Increase prices
On the other side, you might also want to consider increasing your prices, which can remedy a lot of cash flow issues if done successfully.
If customers are satisfied, then they may be happy with a slight increase in prices, and they can often be upsold with new products and services. Even increasing your prices by a small amount can give you enough inflow to balance out your books.
9. Upgrade your technology
Electronic payments and automated online payment systems can change your payment process entirely, and speed up invoicing and processes overnight. Many of the pain points that come with invoicing can be remedied with technology and processes.
Paper-based methods of invoicing and payments are quickly becoming obsolete, and if you’re still using them, switching to digital might greatly improve your cash flow.
10. Additional revenue streams
Sometimes fixing cash flow issues can be achieved by exploring new markets and diversifying your revenue streams. Analyse your business and make an assessment of whether it might need to branch out into a new area, or perhaps add some new services or products.
Multiple income sources can also be a way to mitigate fluctuations in your business, for example, if you obtain most of your sales in one period of the year, such as at Christmas, or during the summer.
11. Financing options
In some businesses, alternative financing options might be a way to make cash flow more steadily.
This could include:
These options can be fantastic ways to improve cash flow, but be aware of the associated risks with each one.
If you are really stuck, then you could also consider hiring a finance broker to help you find the funding that is right for you.
Improving your cash flow is a delicate process, and it may require only a few or all of the suggestions we listed. All businesses are different, so make sure you completely understand the finances of your business before making any changes.
We have many loans available at Rise Funding that you can use to improve your cash flow.
The number one reason businesses come to Rise Funding is to get financial solutions to help manage cash flow, so if this is you, then contact us today.
If you are looking for a loan, but aren’t sure what to go for, then Rise Funding you can get an instant business quote in seconds.
You can also use the form below to find the business funding that you need.
