January 4, 2020

How to Improve Cash Flow

Read more about Business

Cash flow can make or break your business. Read on for ways to take your company from negative to positive.

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Positive cash flow means that your business has more money coming in than going out. It's the goal for any well-run business. So what can your business do to improve cash flow?

Read on to find out. We'll explain:

WHY IMPROVE YOUR CASH FLOW

Your business needs cash to cover everything from marketing budgets to employee salaries. If you don't have capital to pay these expenses, you'll likely use money earned from sales or services.

Positive cash flow not only makes it easier to cover these bills, it also helps your business to pay off debts and reinvest in itself.

In addition, tracking your cash flow over time will help you predict and prepare for any upcoming lulls in business.

How to improve cash flow as a small business
If you need quick cash, consider a small business loan or line of credit. But be sure you read the terms so you don't pay more than the loan is worth.

A loan can help you:

  • Buy new inventory or equipment
  • Grow your small business
  • Cover unexpected expenses
  • Cover off-season lulls

Strategies to Improve Cash Flow

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Working to improve your cash flow will improve the overall performance of your business. How can you get started? We cover a variety of ways below.

IMPROVE CASH FLOW IN OPERATIONS

Operations is a good place to start when looking to improve your cash flow. Here are some ways to cut unnecessary expenses and effectively manage operating costs.

Reevaluate Your Expenses
Looking at your operating expenses is crucial to improving your cash flow. Are all your current expenses necessary? Are there cheaper alternatives?

Managing your revenue efficiently can help increase the amount of money you're pocketing. You may want to try the following:

  • Streamline business operations
  • Lease equipment instead of buying
  • Offer discounts for bulk purchases

Send Invoices Right Away
Improve your cash flow by staying on top of your billing. The faster you send out invoices, the faster you will be paid.

If your current process takes too long, consider upgrading to more efficient invoicing software. Some cloud-based accounting programs, like QuickBooks, offer faster and easier ways to send out invoices.

Using invoices to increase cash flow
Encourage customers to pay bills early by offering discounts or free products. Or simply set a date by which invoices need to be paid and firmly stick to that policy. Customers who can't meet the deadline can be charged either a one-time late fee or a compounding fee for continuous late payments. Just be sure to be upfront about your late fee policy.

Pay Vendors at Certain Times
Ask your vendors if they offer discounts for paying early or paying at certain times. If they don't offer discounts for paying early, look into paying at the times that work best for you. Think about when your cash comes in and adjust your payments accordingly.

Invoice Factoring
Invoice factoring is a type of small business loan. Companies can sell their unpaid invoices to a third party in exchange for immediate cash. But that third party will take a small cut of the payment, which makes this a last-resort strategy.

INCREASE CASH FLOW FOR RESTAURANTS

The restaurant business can be unpredictable. If you're struggling to keep a positive cash flow, read on some for ideas on how to improve.

Expand Your Market
Making more money and growing your restaurant is easier said than done. Here are a few ideas to consider if you're looking to expand your market:

  • Add new menu items
  • Revamp your marketing strategy
  • Offer catering discounts
  • Incentivize customer referrals

Require Upfront Payment on Larger Orders
If you provide catering services or offer custom orders, consider requiring full or partial payment upfront. Staggering payments will prevent you from having to wait on a single order to cover any expenses.

If some customers are weary of paying upfront for their order, be open to negotiating a payment schedule to make them more comfortable.

Raise Prices
Most businesses want to avoid raising prices, but it can help improve your cash flow in a pinch. Before taking this route, ask yourself the following questions:

  • What do my competitors charge?
  • Have my fixed costs changed?
  • Have the prices for equipment or inventory changed?

As a business, you need to find the balance between a fair, competitive price for your product and the value of the work you put into it.

IMPROVE CASH FLOW FOR A MANUFACTURING BUSINESS

Efficiency is a crucial part of running a manufacturing business. If you're looking to cut even more unnecessary expenses and generate positive cash flow, read on for some ideas.

Repair Capital Equipment
If your business has capital equipment, like motor vehicles or machinery, consider repairing it instead of replacing it entirely. To save cash and extend the lifespan of your equipment, consider these options:

  • Create a maintenance schedule
  • Buy refurbished or lightly used
  • Work out a deal with local repair facilities

Get Rid of Old Inventory
One easy way to increase cash flow is to sell old inventory. Which products sell well, and when? Which products perform poorly? Consider your sale times and seasons to evaluate your inventory based on those patterns.

If you don't have the ability to sell your inventory at a profit, consider liquidating your inventory to generate liquid cash.

Consider a Different Revenue Source
Maintaining a positive cash flow can be a challenge, especially if your business manufactures a seasonal product.

If this is the case for your business, consider adding an alternate source of revenue. Take some time to brainstorm other ways to generate income during your off-season.

How to Effectively Control Cash Flow

After examining your current expenses and productivity, consider other finance-centered options to increase cash flow. Here are some ideas to get you started:

Open a Business Savings Account
While it won't impact cash flow immediately, earning interest from a savings account will generate more liquidity and improve business credibility.

Get a Business Cash-Back Credit Card
If you open a free credit card and take advantage of its perks, you may be able to earn enough points to pay off your credit card each month. Plus, you'll gradually improve your business credit.

THE BOTTOM LINE

Once you understand your business' cash flow situation, you can take steps to improve it. By making these moves, you should see changes in the short-term and long-term prospects of your business.

More from CreditDonkey:


Short-Term Investments


23 Common Reasons Why Your Business Might Fail


Business Loans


Business Credit Cards

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