10 ways to improve cashflow for your small business

SUMMARY

Cashflow is the lifeblood of any business. Poor cashflow can force even the most successful businesses into insolvency, so it’s essential that you manage yours effectively. If you have a business or are thinking about starting one, read on to find out how cashflow management can help your business succeed. It doesn’t take long or cost much to implement these tips and improve your business cashflow.

10 Cashflow management tips to safeguard your business in 2022 and beyond

Businesses need cashflow to afford the running costs and pay bills but have limited options at that crunch time when extra money is needed to keep going.

 

Cashflow management helps you keep track of where your money is coming from and going to at any given time. If you know how much cash you have available at different times in the year, and why that changes, you’re more likely to be able to adapt to changing circumstances. Having a sound grasp on your cash flow is especially important for small businesses, which tend to have smaller reserves and can find themselves with restricted access to capital if they don’t manage their cash properly.

 

There are options available such as business loans that can provide a working capital lifeline if your business is struggling to stay above water because of customers paying late or unexpected outlay on stock or equipment. 

Although a business loan offers much-needed working capital, you need to show a lender you are managing your cashflow when asking for the money. 

 

Here are some tips on avoiding cashflow problems:

 

1) Know Your Cash Flow Now 

If your business is lucky enough to be enjoying a strong cash flow at the moment, congratulations! However, it’s important to understand why your cash flow is what it is at this particular moment. Are you benefiting from an end-of-year bonus, such as a tax rebate? If so, your cash flow will look very different next year. It’s also a good idea to note how your cash flow changes each month. While some factors, such as payroll, remain fairly consistent throughout the year, others, such as utilities and insurance premiums, change depending on the season. Being aware of these fluctuations will help you plan for them. If you know they’re coming, you’re less likely to run into a cashflow crisis as a result. 

 

Monitor payments in and out, late payments and stock levels. Check month-to-month changes and quarterly trends to spot where cashflow is squeezed.

 

2) Don’t Delay Payments 

Delaying payments is a tempting way to make your cash flow look healthier in the short term, but it can seriously damage your business in the long run. If you have customers who are behind on their payments, don’t let them slide. Make every effort to collect on what you’re owed as promptly as possible. If you don’t, you’ll be hurting your business in two ways: first, by letting your cash flow take a hit as a result of the late payments; and second, by damaging your company’s reputation with customers who may be put off doing business with you in the future. If you’re making payments to suppliers, make sure you’re not delaying them. Delaying payments is a sure-fire way to put your business in danger, as suppliers are likely to take action if you don’t pay them on time. If you want to keep your business afloat, you need to keep your suppliers happy. That means paying them on time, every time. 

 

  • Pay bills when they are due – Don’t pay early unless it suits you – pay invoices on their due date to keep your cash in the bank for as long as you can 
  • Ask suppliers for credit Suppliers want you as their customer and will often extend payment deadlines to keep your business 

 

3) Track Your Receivables 

If you’re taking payments in advance, you need to keep track of when they’re due and how likely they are to be paid. By tracking your receivables, you can get an idea of how healthy your cash flow will be in the coming months. To do this, create a spreadsheet where you list each outstanding invoice, the date it’s due, the amount owed, and the expected payment date. This can be as simple as a spreadsheet or as complicated as a full-blown accounting system. It all depends on the size and complexity of your business. 

 

  • Invoice customers without delay. Make time to send out invoices promptly and collect the information you need to send out invoices when you make a sale or set up a customer account to save time. Give a clear payment is due date every time. 
  • Offer payment options Go for a bank transfer first – you get the money quicker, but accept cash, cards and even PayPal 
  • Give early payment discounts Tempt a customer to pay promptly with an early bird discount 
  • Monitor payments Keep an eye on your aged debtors list and chase late payers with a polite prompt 
  • Set credit rules Manage your cashflow instead of reacting to customer demands. Credit control is about managing non-payment risk to your business 
  • Accept some customer’s won’t pay Have someone on the staff, your spouse, a friend or relative follow up late payers with telephone calls, friendly warnings and if all else fails, debt recovery through the courts 
  •  Don’t tie up cash in stock -Think of stock as money. While it’s with the supplier, the cash is in your account but if you move stock to your premises, you are moving cash out of your bank account as well 

 

 

4) Plan for Fixed Costs 

Fixed costs, such as rent and salaries, rarely change from month to month. If you know they’re coming due in the near future, you have a chance to prepare for them by setting aside the necessary money. Let’s say you know your rent payment is due in two weeks’ time. Instead of waiting until the last minute to find the money, put it aside in a separate account as soon as you know it’s coming due. That way, you’ll be less likely to use it for day-to-day expenses, and you’ll have it on hand when it’s needed. This is especially important if you’re running a micro- or mini-business and have less access to capital than a large corporation. Keeping an eye on your fixed costs will help you prioritize your spending so that you can meet your obligations. 

 

5) Make Good Use of Short-term Loans 

Short-term loans are often used by growing businesses to bridge the gap between income and expenses. If you know you’ll be short of cash at a specific time, but don’t have a reliable way of getting it, consider taking out a short-term loan. By repaying the loan quickly, usually within a few months, you’ll be able to free up the money you borrowed and use it for something else. Note that taking out a loan will have an effect on your cashflow in the long term, so make sure you can repay it on time. 

 

6) Lock in Repayment Dates for Long-Term Debt 

If you have long-term debt, such as secured extended loans, you have more time to repay it than you do for short-term loans. That gives you more flexibility, but it also means that your cashflow might be negatively affected for extended periods of time. To offset the impact of your long-term debt on your cashflow, try to negotiate a shorter payment schedule. If your lender is willing to shorten the repayment period, you’ll be able to free up the money that you’re currently putting towards your debt faster, meaning more cashflow for you. 

 

7) Don’t Be Afraid to Trade Equity for Cashflow 

If you’re strapped for cash, you may be tempted to look for outside investment. While this is a risky move, it can be a good way to increase your cashflow and give your business a boost. To make this work, you’ll need to be able to prove that your business is sound and attractive enough to entice investors. If you can do that, you may be able to get a good deal: a portion of your company in exchange for a cash infusion. 

 

 

8) Make the most of your tax refund 

Your annual tax refund is a good way to boost your cashflow in the short term. You can either spend it on a luxury item such as a vacation or save it until you have a pressing need for cash. The best approach is to save your refund and use it as a source of capital for investments or business growth. You can set up an automatic, monthly deposit into a savings account earmarked for your tax refund. This way, you’ll have a source of cash available when you need it and you can plan ahead for what you’ll do with the money. 

 

9) Plan for growth and stay ahead of demand 

Every business will experience growth at some point. Whether you’re expanding your product line or simply experiencing an increase in demand for your services, you’ll find that you need to hire more employees or purchase new equipment. This can put a strain on your cashflow, but you can prepare for it by setting aside money for growth. If you know that you’ll need to hire additional employees in the near future, set some money aside now by contributing to a profit-sharing plan or making a regular contribution to an employee stock ownership plan (ESOP). Alternatively, you can make a regular contribution to a savings plan earmarked for future growth or business loan/ short term loans are a great options to execute these plans sooner. This approach may be more flexible and can allow you to contribute more than you might be able to if you contributed to a profit-sharing plan. 

 

10) Business loans are a great option to help cashflow 

Short-term loans can be a great way to relieve pressure on your cashflow in the short term, but you should try to avoid taking on long-term debt such as a line of credit or a mortgage, is a much riskier way to finance your business than short-term loans. Long-term debt is generally more expensive than short-term loans and can cause a significant amount of stress and anxiety for business owners. Short term business loan debt is an option if you are growing your business rapidly and need to acquire new equipment or hire more employees. You can finance long-term growth with a business loan, through traditional lenders or even investors. Depending on the source of the funding, you may need collateral or to provide a high return on the money, that is why business loans are a great short term options now available to SME businesses rather than your traditional lending  

 

 

 

Conclusion 

Your business can’t survive without cash, and cashflow is the lifeblood of cash. Poor cashflow can force even the most successful businesses into insolvency, so it’s essential that you manage yours effectively. If you have a business or are thinking about starting one, read on to find out how cashflow management can help your business succeed. Cashflow management helps you keep track of where your money is coming from and going to at any given time. If you know how much cash you have available at different times in the year, and why that changes, you’re more likely to be able to adapt to changing circumstances. Although cashflow management won’t solve all your problems, there are now options available to help you boost your cashflow.

 

If you are in need of extra funding to grow your business, add new staff, equipment, pay off existing debt or looking to diversify your product or service offering. Extra cashflow can help you keep your business afloat and make you more money in the long run. If you want your business to succeed, keep an eye on your cashflow. 

 

If you are in need of further financial assistance or advice let us know and we can help with getting you the right funding. Call 1300 760 930 to talk to one of our friendly loan specialist or Get Started here. 

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