Ten Ways To Improve Your Business Cash Flow and Why It’s Important

In a recent LinkedIn poll conducted by Tracy, 67% of you said you couldn’t live without cash flow forecasts to guide your business’s financial decisions. We were surprised it wasn’t even higher to be honest because in our view, a good understanding of your cash flow is critical. Many clients come to us because they struggle to understand why their bank balance doesn’t seem to reflect how well they think they are doing. That’s telling us it’s time to delve into the depths of cash flow management!

For a business to grow sustainably (and to successfully navigate the financial bumps in the road), cash flow needs to be your priority. And not just when times are tough, and cash is tight. Making sure that you’re maintaining an optimal level of cash on hand at all times is essential to success. It may also be wise (depending on your plans) to consider building up a war chest so that you are ready and able to take swift action if a great commercial opportunity presents itself.

How to retain the best cash flow in your business?

Here are 10 key methods to improve your cash flow in the immediate but also for the long-term health of your business.

1. Know your break-even figure – you need to know what income you need to reach each month to cover all of your outgoings. Once you know this, you can make better spending decisions and keep your cash flow at its optimal level.
2. Create a budget and stick to it – it’s important for each income stream to be profitable. Or if it isn’t that you are doing it for a conscious and specific purpose, so you need to focus on your spending too.  Be more mindful about where your money is going and it can help you make impactful changes.
3. Build a cash reserve – set aside any excess money you make every month into a business savings account. Financial experts recommend keeping 3-6 months’ operating expenses in a cash reserve, but you can decide how much you want to keep available.
4. Automate your bookkeeping – using software such as Xero or QuickBooks can help you improve your cash flow. You can send out invoices immediately, get your clients to pay via Direct Debit, reconcile payments easily, and generate reports with a click of a button.
5. Offer discounts for early payments – if you have certain clients who pay late and miss payments, you might want to offer them a 2-5% discount if they pay early. Not only does this incentivise them to pay, but it also ensures that you don’t suffer from dips in your cash flow too. Win-win.
6. Negotiate extended payment deadlines with vendors – it’s good to set up extended payment deadlines if you can. For example, you could negotiate a 60-day turnaround for all payments or include a clause in the agreement that allows later payments a certain number of times in the year. While it may not be needed, it is good to be prepared in case you ever need to use this option. 
7. Consider financing (when it makes sense) – your focus should be to build up a cash reserve for emergency situations as we saw during the pandemic. This means that, in a situation where you have unexpected expenses or you need a large sum, you should consider short- or long-term financing options instead.
8. Consider leasing supplies, equipment, and real estate instead of buying – while leasing may end up being more expensive than buying in the long run, choosing to lease supplies, equipment, and real estate for a certain amount of time will help you to maintain a steady cash stream for day-to-day operations.
9. Seek advice from a finance expert – the best way to improve your cash flow is to seek professional advice. A commercially experienced FD will help you make the best financial decisions for your business.
10. Improve your inventory – what is your inventory turnover? Surprisingly, there could be a lot of cash tied up in your inventory, so check your inventory regularly. Are you buying too much and holding too much stock? If so, consider selling it at a discount and start buying less of it. This is something that your accountant can help you figure out.

Why is forecasting and management of your cash flow so important for a growing business?

There’s a reason people say ‘Cash is King’ when it comes to running a business. That’s doubly important when you are a small, ambitious business looking to grow. You may have initial investment, but you need to manage that wisely and use your cash flow forecasts to navigate the way ahead.

Cash flow forecasting and cash flow management is so important for businesses looking to scale-up. It’s the lifeblood of any business to keep afloat and grow. When it’s gone, it’s gone along with your reputation!

In this video, Tracy reveals her 5 top tips to improve your business cash flow.

While it’s obviously very important to improve your cash flow right now due to inflation and rising costs, as you can see from Tracy’s video, it’s essential for your business to have a healthy attitude to cash flow all year round.

How to navigate your business cash flow

Keeping a robust cash flow takes vigilance, but it will help protect your business during turbulent times, not to mention, it will also help you sleep soundly.

Are you finding it hard to keep a tight control on your cash flow, when you are trying to be everything to everyone in your business? Do you really understand how your sales translate to your current bank balance and what you can do to effect this? Good cash flow management could make the difference between sinking and swimming in the fast lane! You don’t need to do it alone nor do you need to incur time and cost of recruitment.

 We can help you to spot potential rocks or rough seas ahead so you can take action now to avoid them!

Arrange an initial chat with Tracy to see how you could benefit from our expertise to scale your business while keeping a close eye on your cash flow!