Juggling cash flow? 3 ways to improve the cash flow in your small business

September 26, 2016 October 22nd, 2021

One of the most critical aspects of managing your small business is cash flow.

According to Dun & Bradstreet, 90% of small businesses fail because of poor cash flow—not enough cash coming in, and too much going out.

Unfortunately, there’s a lot more to running a small business than just cash flow, and it can feel like you’re spending all your time juggling conflicting priorities.

But as we said, cash flow is critical to the success of your business. So here are three areas that, if you sort them out now, can help with your cash flow for years to come.

1. Establish a solid invoicing and collections process

Most of the money coming into your business will come from invoices and other collection methods. So making the process as efficient as possible will improve your business’ cash flow.

  • Send your invoices straight away. It’s important to get cash coming into your business as quickly as possible. So as soon as you confirm the sale, send out the invoice.
  • Make your invoices easy to pay. Use an invoicing system that makes it easy for your customers to pay.
  • Accept credit cards. Waiting for cheques to arrive in the mail is a cash flow killer.
  • Make it easy for customers to set up recurring automatic payments. This not only saves your customers’ time, but also gets the money into your business’ bank account quickly.
  • Create payment terms. Why should late payments be your problem? Establish and enforce strict payment timeframes, and follow up on outstanding invoices quickly.
  • Offer discounts only as a last resort. If you need cash badly, then offering a small discount (e.g. 3%-5%) for paying the invoice immediately might help. After all, any money is better than none.

2. Keep solid records

Another way to improve the cash flow in your small business is to track it closely so you can understand it better. Here are four steps to getting a handle on your business’ cash flow:

  1. Always sort your bank account by ‘cleared’ status.
  2. Make sure accounts receivable (invoices to customers) and accounts payable (bills from vendors) are always up to date.
  3. If your business’ bank account has any fixed and recurring payments, use rules to enter them into your accounting software automatically.
  4. Estimate the cost of any large variable expenses you expect to hit your bank account (e.g. payroll) as they get closer.

3. Create a cash flow forecast

Following those four steps should give you a pretty good handle on your cash flow. By looking at your bank accounts regularly you’ll be able to see:

  • where you cash it at now
  • where your cash balances are heading (based on the expenses you know are coming).

Analysing your cash flow at this level of detail also allows you to create a monthly forecast, which will help you quickly pinpoint any potential cash flow problems. And if you can see one coming, you can take precautions (e.g. discounting an invoice or pulling on a line of credit) instead of being blindsided by the problem.

By following these suggestions, your business’ cash flow will be much healthier. And you’ll have one less thing to juggle.

But if you’re struggling with cash flow in your small business, or would like to know other ways to improve it, don’t hesitate to get in touch with us.