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improve small business cash flow

5 Ways to Improve Small Business Cash Flow

If you run a small business, cash flow should be one of your highest priorities.

Hard stop.

We’ve talked about cash flow management before, and why it’s so important:

“Cash flow is the actual inflow and outflow of cash your business records over time. Simply put: Your company can be theoretically profitable over the whole year, but if you don’t have cash in March to pay off expenses due in March, you’ll still be in hot water.”

So while there are plenty of old business chestnuts that haven’t exactly stood the test of time, “cash flow is a business’s lifeblood” remains incontrovertibly true.

Once you’ve learned how to manage that lifeblood, however, you need to learn how to make it pump faster. So we’re going to share a few tips about how you can improve your small business cash flow.

5 Ways to Improve Your Small Business’s Cash Flow

Tip 1: Use Accounting and Payments Software

One of the easiest things you can do to improve your cash flow is offload some of the work.

Accounting software, for instance, makes invoicing easier and faster, allowing you to collect for products sold and services rendered more quickly than before. Bill pay software can have a similar effect on both ends of the business transaction spectrum, making it easier for people to pay you on time and regularly, but also making sure you can schedule exactly when you pay vendors.

Tip 2: Invoice Immediately

This particular tip is a difficult one for very small businesses just given a lack of personnel resources, but it can make a big difference. Right now, chances are you’re in charge of numerous business functions — you sell, you provide service, you’re responsible for getting the product out. You’re also in charge of invoicing, which you typically let sit until the end of the month so you can do it all at once. Well, it might keep you organized, but it also delays when you’ll get that cash in your pocket. Managing your business so that you send out invoices immediately should have a massive positive effect on your cash flow.

Tip 3: Take a Proactive Approach to Debt

Small business owners frequently look at debt as an enemy, as something toxic — something to be avoided.

When used and managed poorly? Sure, debt can be harmful. But if used intelligently and in the right situation, it can actually bolster your cash flow situation.

The time to harness a business loan or other debt isn’t when your company needs it most; it’s when your company needs it the least. If you your small business is running smoothly and according to plan, you’ll be more likely to receive an approval for a loan or, ideally and more practically, a line of credit — something that you might not need at the moment, but that could come in extremely handy during a push for growth or an unexpected economic fallback.

And if you’ve already taken out debt that’s weighing on your cash flow, at least explore the idea of refinancing. You might be able to consolidate debt on, say, a business credit card into a business loan with a much lower interest rate.

Tip 4: Incentivize Good Behavior (And Punish Bad Behavior)

Positive and negative reinforcement can go a long way to improving your small business cash flow.

When you send out an invoice, that’s all it is — an invoice. It’s not cash, a check or a credit card payment made to you. It’s a request, nothing more. And businesses often prioritize these requests differently depending on several variables, including when they received them, their relationship with the vendor and their own financial situation.

You can shift this balance in your favor by doing a couple of things.

First, adopt a policy of charging late fees for late payments. No one wants to pay more than they have to, so businesses will be far less likely to overshoot payment deadlines if they know it will cost them. Secondly, if it’s financially feasible, consider rewarding on-time or early payments with modest discounts or other incentives.

Tip 5: Talk to a Consultant About Proactive Cash Flow Strategies

Every small business’s situation is different — what works for one might not work for you. So the best advice we can give you is to sit down and talk to a specialist who can help you maximize your cash flow.

McManamon & Co. can do just that, providing consulting services to small and midsize businesses across a number of topics. Among those? Cash flow. Rather than falling back into defense, we can help you play offense by formulating a number of cash flow strategies you can implement throughout the year.

Learn more about what we can do for you. Call us at 440.892.8900 or contact us online today.

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