Cash flow is an essential aspect of any business. A positive cash flow will aid an organisation to succeed in running and growing an entity. However, there could be situations where the firm might have to experience negative cash flows or a decrease in the cash flows which would be disadvantageous for the company’s operations. Not only do you need to bring cash inflows to improve your entity’s position, but also you are required to reduce your cash outflows.
Managing your cash flow is very important as it helps to make informed strategic decisions, plans and budgets for future projects.
8 top tips to improve your cash flow
You can use some or all the tips below to improve the cash flow in your business:
1. Forecast and prepare for future cash needs
Any business needs to take proactive measures to avoid cash flow issues arising in the future. Therefore, the company must keep timely, relevant, and accurate accounting records that allow you to forecast your business operations based on historical results. Consequently, a business must review its cash flow at least every month.
For example, if you identify a requirement for extra cash in the future, you may as well start contacting lenders to obtain a loan to finance the organisation’s future needs. A healthy planning process will ensure that your company has sufficient funds to keep it running while covering regular expenses such as taxes, rent and other accounts payable. This may also assist you over time in funding expansion.
2. Stimulate your clients to pay back swiftly
If you provide your services to your clients where they pay you post-completion of their work, there could be situations where you would experience a delay in payments. If the client makes the payment after you provide your service, you will have to cover the expenses on the client with cash in hand, which will consequently harm your cash flow.
If you incentivise such clients to make the payment faster, you tend to have your cash flow and accounts receivable in good shape. For example, if your current payment period is 20 days, you can offer your client a slight discount if he pays within ten days.
3. Increase your charges from the client
In addition to the price you charge your clients, there are several other factors that they pay attention to when making a purchasing decision. If you provide your customers with results they admire and value, the price will not heavily factor in your client’s purchasing decision. Therefore, it is essential to identify what makes your services unique and use those grounds in your sales and marketing communications.
Increasing the sales charge will eventually result in an increase in the total sales value without any additional investment from your business’s point of view, making it one of the most successful methods of improving your cash inflows and profits.
4. Make use of your idle cash balances
An alternative method of increasing your cash flow is to re-investing your idle cash that is not earning any income.
They can be invested in an appreciating asset or deposited into a bank account that generates comparatively high interest. Alternatively, you could re-invest your idle cash balances to expand your company, reduce your payable balances and lower your interest payments, settle your expenses early or invest in modern technology. These methods will help you reap competitive benefits over other competitors.
5. Assess your expenses regularly
For a business to have an efficient cash flow, it must regularly assess its expenses to see where it can manage them to have a positive cash flow and profit. Research on company expenses will aid in identifying and eliminating unnecessary costs such as duplicated services, unused subscription services and excess office administration costs.
6. Utilise strategies that benefit your business when paying vendors
If a vendor offers you a discount for early settlements, it is advisable to take advantage of the offer if you have sufficient cash balances. Similarly, if the vendor is hesitant to grant any discount, ensure to make your payments at the most favourable time for the business.
Suppose you require additional time to make your payments. In that case, we recommend you use business credit cards to enable you to make your payments over a period rather than making the entire payment at once, which will have adverse consequences on your cash flows.
It is beneficial for an organisation to maintain a healthy relationship with its vendors to land on better payment and supply terms.
7. Upsell to your existing clients
It is comparatively effortless for a company to sell to its existing client base than to acquire new customers, which will require heavy promotion and advertising costs.
You can evaluate the buying patterns of your clients by analysing their purchase history and then offering them complimentary services that better match their needs. Like price increases, upselling will also not require additional investment from your end. In addition, this will increase your clients’ loyalty towards your business.
8. Effectively manage your cash flow which is improved
Your cash flow improvements can erode if there are no effective cash management systems in place. Therefore, an organisation should have necessary measures put in place to review its budget regularly. You should adjust your cash outflows and your cash inflows to ensure an efficient cash flow.
In addition to regular budget updates and reviews, think about executing a cash management system such as Profit First Method. Profit First method compels the cash flow improvements in your business. By restricting the amount of money available for expenses while setting aside cash to ensure you can pay yourself and other essential expenditures, you can make sure your business always has cash on hand to continue with positive cash flows.
You can utilise a combination of the tips mentioned above to make minor changes to your business structure that will assist you in achieving significant cash flow improvements. It is always best advised to speak to your accountant before making any changes to ensure that you’re on the right path of having a positive cash flow in your business.
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