5 Ways to Improve Cash Flow in Your Small Business

This article gives five tips on how small businesses can improve their operating cash flow. It originally appeared on FitBizLoans and is republished with their permission.

Running your own small business is not for the faint of heart. When you’re the boss, and in charge of your own business strategy, it can be stressful knowing that you and your employee’s well being are tied to the success of your idea.

With over 80% of new businesses shutting down within the first two years of operation, the odds are stacked against small businesses. The entrepreneurs who do make it are the ones who are creative, innovative, and aren’t afraid to look outside the box to boost their cash flow and optimize their bottom line.

From an economic point of view, any company can be distilled down to a series of numbers: revenue, profits, and expenditures. When these things are in check, your enterprise will prosper, having the appropriate amount of resources and investment in each area of your operation.

However, too many business owners get caught in the projection phase, focusing on the potential for future profits, without the operating capital to get there. If you want to see your business flourish, it’s critical that you explore ways to not only feed your future, but find ways to improve your operational cash flow for the present.

Positive operating cash flow will help your business survive. Here are five ways to increase your cash flow.

Evaluate your pricing strategy

Small businesses often struggle to effectively price their goods and services. In fact, many underestimate the importance of pricing with cash flow. Optimizing your price can increase your sales, improve your bottom line, and provide you with positive cash flow.

Finding the right price is a balancing act, overpricing can lead to fewer sales and underpricing can create slim profit margins. To find a happy medium, you should conduct market testing using a variety of different prices to see the critical point where sales and prices create the most favorable net value.

It may take some adjusting, but when you find the right price you’ll be surprised at how much it impacts your cash flow. If you’re a small business who struggles to raise your prices, remember that price is a perception of value. Higher price often correlates to higher-quality in the customer’s eyes. The more value you can provide or appear to provide your customer, the more they’ll pay for your product.

Automate your invoicing

One of the biggest mistakes that small businesses make is an ineffective invoicing method and lax collections department. Because every business is different and every transaction unique, it’s impossible to create hard-and-fast rules for invoicing. Some small businesses have clients with net-15, net-30, or even net-60 payment terms upon invoicing. Others require upfront payment. Regardless of your structure, it’s important to remain steadfast and disciplined in how you collect on your accounts receivables.

An easy solution to this issue is to find software or an application that automatically invoices your clients. This is especially helpful if you have recurring monthly invoices and can mitigate any organizational issues with your accounting department. Additionally, these resources also have automatic reminders that alert clients when their invoices are coming due or if they are late with payments.

Don’t be afraid to charge your clients for late payments. Business is about punctuality and credibility, if a client finds that they can pay you late on invoices without a penalty, then you are setting a precedence for late payments.

Cash flow is as much about predictability and forecasting as anything, and if you’re forecasting payment on an invoice that isn’t recognized when you expect it, you risk putting yourself in a bad financial situation.

Accept more payment options

The modern marketplace is incredibly competitive. Between online retailers and big box stores, it’s tough for any small business to survive. However, there is no reason to shoot yourself in the foot by limiting the payment options for your small business.

Companies that accept a range of different payments are less likely to lose a sell because of limited options. As long as you provide proper financial verification and security to limit the risk of working with a client, there is very little reason to limit your payment options.

Consumers appreciate variety when looking at their alternatives, so the more diversified your payment types, the more likely a customer is to pick you over the competition. While not every payment type is cash flow friendly, the more sales you make can mitigate any delay in recognizing revenue.

Offer deals for continuity sales

Briefly mentioned above, many small businesses will work with recurring clients. The value of continuity sales is incredibly important to the stability of your business’s cash flow. Being able to forecast and predict how much cash you have coming in month to month will allow you to effectively allocate expenses and optimize cash flow.

The longer you work with a client, the more predictable they are. For instance, if you have worked with a customer for two years and every month they pay you on the 5th for the exact same amount, you can rest assured that you’ll likely have that same invoice fulfilled for all future months that the contract is active. This adds stabilities to your books and gives you insight to make strategic decisions knowing that money will most likely come in on the 5th.

Recurring business, especially in a monthly manner, is extremely valuable to your business’s operating cash flow. Thus, it may make sense to shave some margin on the products or services in an effort to gain more recurring clients.

Considering offering small discounts to clients who sign on for repeated business over consecutive orders. The financial stability will far outweigh the few dollars you lose on the discount.

Find a good small business accountant

Another way for small businesses to improve their cash flow is to hire an independent accounting firm to audit and assess their financials. While there may be an initial investment, the return can pay huge dividends.

Finding a CPA Firm with experience working with small businesses in your industry can be the difference maker between succeeding or failing. Many CPA firms have a team dedicated to optimizing cash flow and providing financial insight. They may look at your budget forecasting, expenditures, bookkeeping, and other financial areas of your business to find inefficiencies, errors, or opportunities.

Because most small business owners are not financial gurus, hiring an expert team of accountants and business advisors may make the most sense. Not only can they help you increase your immediate cash flow, but they can put your small business on the path to financial success for years to come. Not to mention, they can also help you find the best tax breaks and credits for your small business.

As a small business owner, you’ve likely invested thousands of hours and dollars into making your venture a reality. Don’t let poor money management and outdated methods derail your chances at long-term success.

The tips above will help your small business get on the path to positive cash flow, but it isn’t a onetime fix. The best businesses are constantly auditing and iterating their methods and processes, especially as it relates to the bottom line.

If you need help with managing your cash flow or other acccounting services, consider reaching out to Tampa’s premier accounting firm, Rivero, Gordimer & Company.