Healthy cash flow is essential to the running of any business whether big or small. Without it, you could find your ability to invest and drive growth heavily restricted – while in more severe situations you may become unable to pay bills, wages and other necessary expenses.
With regular incomes slashed by the pandemic, an estimated six million small businesses fear for their survival according to a study carried out late last year. If your company is in a tight spot, find out some of the best ways to improve your cash flow below.
Create a Forecast
As with most things in life and business, having a realistic plan can help your business prepare appropriately for challenges and perform better than it might without one.
You can use accurate accounting records to forecast future performance based on historical results. Knowing when traditionally tough periods are coming up will allow you to put plans in place to keep your cash flow steady.
Lease Instead of Buying
This tip might seem counterintuitive at first. But while leasing supplies, equipment or property is usually more expensive overall than buying, it can also be far less damaging to your cash flow.
You’ll pay for these items in smaller, more manageable instalments and have extra spare cash to work with from month to month.
Encourage Early Payments
Overly long payment periods have the potential tocrippleany business.While a typical window is 30 days, 90-day payment periods are common in some industries such as construction.
Work with your customers to chase overdue payments or shorten payment windows where possible. You could offer them small incentives for paying bills ahead of time.
Use Electronic Payments
Using and accepting electronic payments can help you hold onto cash for longer and bring it in quicker. You can wait to pay bills until the day they’re due, while cutting out the delay between sending out invoices and waiting to receive payment.
Virtual payment cards are a safe option favoured by consumers – you could even increase sales by offering this flexibility.
Increase Profits (or Cut Costs)
Increasing your income and reducing outgoings is an obvious way to improve your cash flow. You could explore raising your pricing based on market research or try low-cost marketing techniques to attract new customers, such as social media advertising.
Alternatively, are there any areas of your business that aren’t as efficient as they could be? You could introduce technology or outsource certain processes, for example.
All businesses experience cash flow challenges. Try these tactics to give yourself more flexibility.