7 ways to improve cash flow for your small business

Even a profitable, fast-growing company can come up against cash flow issues. And since that’s true, you better believe that companies going through lean times often struggle with cash flow management.

However your company is currently faring, a little proactive work can go a long way here. If you’ve been wondering how to improve cash flow in a small business, here are seven suggestions.

Plan ahead for cash needs

The last thing you want is to have someone hit up your business for a payment you need to make, only to discover you don’t have enough funds. Or, worse yet, to go to run payroll and find you’re short.

To avoid this unwelcome scenario, do a cash flow analysis. This means tracking all the ways cash moves in and out of your business. The end result should be a cash flow statement. This gives you a tangible way to make sure your business cash flow can keep up with necessary expenses, whether that’s paying vendors, your team or your taxes.

Also, make it a goal to establish a cash reserve. This is essentially an emergency fund for your business.

Cut unnecessary spending

Your cash flow analysis should give you a good idea of how your company spends its money. Take a close look at any high-expense categories.

If you’re spending a lot on office space but some of your team has been asking to go remote or hybrid, for example, you might have a cost-cutting opportunity there. And anywhere you can slash ongoing expenses will support healthier cash flow management.

You might also eliminate some costs during certain times of year. Some seasonal expenses that you might be able to cut in their off-season include:

• Seasonal hires
• Software subscriptions you only use periodically
• Accounting personnel or services
• Paid interns

Get paid quickly

Timing is everything when you’re trying to figure out how to improve cash flow in a business. The faster people pay you, the more cash you have on hand to work with.

To encourage faster payment, you can:

• Offer a discount to customers who pay within a certain timeline
• Accept a variety of payment options, especially online payments, which save you from having to wait for a mailed check
• Establish proactive follow-up procedures on outstanding invoices
• Send out invoices the day services are rendered or products are distributed

Essentially, to have more cash flow in a business, you want to take every measure you can to help your accounts receivable bring in as much as possible as quickly as possible.

Improve inventory management

Cash flow management means more than closely monitoring money sitting in various accounts. It also means taking things that represent cash outflow — namely, unsold inventory — into consideration.

The merchandise stocking your shelves is money you’ve spent that hasn’t seen any returns. So if it’s been sitting there for a while, it’s time to re-evaluate. Offering that languishing product at a discount might feel like it eats into your bottom line, but avoiding stagnant inventory is an important part of keeping your business cash flow healthy.

Improve cash flow management

Cash flow management can get a lot more nuanced than many people expect.

In the same way you want to shrink the amount of time it takes your business to get paid, you also want to lengthen the amount of time before cash outflows. That might mean negotiating longer payment terms with your vendors. It could mean making the minimum payment on low-interest business loans. Or it could mean covering some expenses with a business credit card that you wait to pay until the end of the month (potentially even earning cash back rewards in the process).

The longer you can put off paying, the more cash you keep in your business at any given time.

Know when to lease and when to buy

Yes, leasing comes with a major drawback: you don’t build equity as you make payments. But if you’re trying to figure out how to improve cash flow in a business, leasing can be a powerful tool. It gives you access to equipment, real estate, etc. your company needs without the major cash outflow that purchasing it — or even putting up a down payment — would mean.

Plus, a lot of lease agreements include service of the leased asset. That could mean repairs for the company car or the office HVAC system at no additional costs.

Manage your debt

Debt plays a big role in most companies’ cash outflow.  As a result, a careful analysis of — and plan for — your outstanding balances is a must as you figure out how to improve cash flow in your small business.

To get a good handle on your debt so it doesn’t negatively affect your business cash flow, take these steps:

• Review and prioritize debts: Find out who you owe money to and which are most important. Review your loan terms and interest rates to help here. Generally, the highest-priority debts are the ones with the highest interest rates. The faster you pay those off, the less you’ll pay in interest.
• Develop a debt payment strategy: Make a clear plan to pay off all of your debt. Again, your cash flow statement can help here. If you see that you usually have a big cash inflow at a certain point (like when large customers pay their annual subscription or during the holiday shopping season), use it to your advantage. You might choose to take a chunk of that cash inflow and dedicate it to paying down a small business loan. Ultimately, you want to get to a point where your debt payments are a known quantity in your business and they fit well into your overall cash flow management plan.
• Consolidate business debt if necessary. If your outstanding balances present a big obstacle to healthy cash flow, combining multiple debts into one loan may help. At the very least, it could transition you from having debt payments due several times throughout the month to one monthly payment. That can make cash flow management easier.

Bottom line

Managing cash flow in a business requires some work, but it’s key to the company’s success. Explore all your options to find out how to improve cash flow in your small business. And make sure you have a solid grasp on cash inflows and outflows so you never find your business in a situation where it doesn’t have the cash on hand that it needs.

Frequently asked questions about business cash flow

• What are three cash flow problems?

  Countless cash flow problems can impact a business, but the main issues frequently stem from a bad sales season, slow payment from customers and spending money with too little being deposited in your business bank account during that specific time period.

• What is a healthy cash flow?

  A healthy cash flow means your business always has the liquid capital it needs to make payments to employees, vendors and anyone else it owes.

• What increases cash flow in a business?

  Anything that increases the money coming in and decreases the money going out improves the cash flow of a business. That could mean encouraging customers to pay faster by offering a discount, selling merchandise that’s sitting stagnant, negotiating longer payment terms with vendors and other strategies.