When you own a business, there is a risk of bankruptcy if you don’t stay on top of your cash flow. In fact, about 82% of business failures result from improper cash management.
What you may not realize is that having a positive cash flow encompasses more than just business profitability. Even if your business is profitable now, you may still have a negative cash flow. A common example of this is if you have future payment obligations you cannot meet because you have not timed your incoming funds properly.
When you take steps to maximize your business’s cash flow, you can receive more profits, meet your financial targets faster, and reduce operating costs. Keep reading for some tips to help improve your small business cash flow.
Plan for Your Business’s Future Cash Needs
Maintaining accurate, timely, and relevant accounting records helps you better forecast your business based on past results. You should review your cash flow at least once per month. When you are proactive with your cash flow, you can forecast the funds you will need and prepare for financially lean times or certain seasonal issues.
Improve Accounts Receivable
When you manage your accounts receivables, you can stay on top of any outstanding invoices and reduce the amount of time it takes to receive payments. One way to do this is to encourage your customers to pay you early. If you have payment terms of net 30, provide a discount for customers who pay net 10.
Manage the Process Used for Accounts Payable
When you establish and organize the process used for accounts payable, you can improve your business’s cash flow. Does your accounting department use software for this? If not, now is a good time to invest in it. You also need to communicate with your team to let them know what invoices are most important, so they are always paid first. You should never allow invoices to go unpaid.
Put Idle Money to Work
You can also improve cash flow by making your idle money work for you. This is the money you have that is not earning any income.
You may have significant balances in accounts that don’t earn interest. You can find somewhere best to keep these. Put this money into an interest-bearing account. You could also use the funds to expand your operations, use it for reducing debts, and reduce interest payments. Other options include prepaying some expenses and investing in new technology.