10 Ways to Improve Cash Flow for Your Small Business

20 Jun, 2016 / Comments: Comments Off on 10 Ways to Improve Cash Flow for Your Small Business / By

As a business owner, the goal is to always be growing your top line and increasing your profits each year. However, even if you are, it’s best not to let your guard down, as even those companies that are profitable and growing can have major cash flow issues if their operations, investing activities, and finances aren’t running as smoothly as possible. At some points in your business you’ll be cash flush, whereas others you may not be. During your low times, consider these ten ideas to aid you in increasing your business cash flow as quickly and efficiently as possible.


1.   Be a Good Predictor

The first step is to have a good idea of where you stand in your cash flow and where it will likely be in the near future. In many cases, small businesses are not prepared for the costs that comes with growing, as more sales often means having to take on more employees and deal with a bigger inventory. Many companies end up getting blind sided by cash flow movements that aren’t to their favor, however would have been predictable if they simply took the time to sit down and shift through their finances.


2.   Lease or Sell Unused Assets

Examine your home, storage units, and offices to see if you have any assets that aren’t in regular use. If you have an excess inventory, equipment, or materials, then why not sell or lease them? Don’t fully discount personal items either. Moreover, if you have any extra office space that isn’t in use, then you may want to consider subletting that as well to make some extra cash. This will not only lighten your financial load, but will also help clear up some clutter.


3.   Evaluate Your Terms

If you’re having cash flow trouble, examine your customer and supplier terms to ensure that they are properly balanced. If you have an average payable of 20 days and an average receivable of 40 days, then that means you’re having to float for 20 days and so you need working capital.


4.   Improve Your Inventory

Do an inventory check. If you have goods that aren’t moving at the same speed as the rest of your products, then be aware that that is going to hold up a lot of your cash. Instead of buying the same quantities for the products that fly off your shelves as those that don’t, get rid of those products that are not moving. This may mean selling them at a discount.


5.   Do Credit Checks on Customers

If a customer doesn’t want to pay for a big-ticket item in cash, then it’s recommended that you do a credit check. If your client has a poor credit rating, then it is safe to assume that you won’t be given payments on time. Although you may want to make a sale no matter what, taking on a client that makes regularly late payment will only hurt your cash flow.


6.   Segment Your Suppliers, Customers and Inventory

You’ll likely not get very far and just end up frustrated if you try to tackle your cash flow problem as a whole. Instead, try segmenting your customers, inventory, and suppliers. When examining your inventory, you’ll want to look at your sales volatility. When you segment your suppliers, you’ll want to separate them into categories based on how often you use them. For those that you regularly use, you’ll often be able to negotiate discounts and better terms. When segmenting customers consider who your key customers are and put together a strategy for approaching them to maximize your profits.


7.   Make Your Cash Flow a Priority

If increasing your cash flow is pertinent, then ensure that your employees understand the need to make it a priority. Keep in mind that your employees will be the most motivated if you set goals for them. Make sure that even your sales staff knows its importance.


8.   Increase Your Pricing

Raising prices is a concept that is often scary to small business owners, as they worry that it will lower their sales. However, it’s okay to do a little experimenting with your prices to find the perfect number and see how high your customers are willing to go.


9.   Use Electronic Payments

If you use electronic payments, you can hold off until the morning that the bill is due to make your payment. This can buy you precious time, which improves your cash flow. You may also want to consider using a business credit card, as there are some that will give you grace periods for as long as 21 days after your bill is due.


10.  Consider Leasing Not Purchasing

Although leasing equipment, real estate, and supplies tends to be more expensive than buying in the long run, it may be the better option if your company isn’t flush with cash, as you’ll want to ensure you have a steady cash stream for your daily operations. By leasing instead of purchasing, you’ll be able to pay off your assets in small increments, which will help to increase your cash flow.


William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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