10 Ways to Improve Your Small Business Cash Flow

Time and again, small businesses get fouled up on balancing their expectations with their accounting, and it most often has to do with cash flow. A business can go out and secure lots of sales and expectations of new accounts, but if nothing actually deposits in the bank account as cash receipts, then there is no realization as well as money to pay operating bills with. That said, many businesses also don’t do enough to improve their cash situation as much as possible.

Here are 10 tips on how to turn that cash situation around for your small business.

1. Where Is Your Cash?– If you don’t have a handle on your business money flow in any form, you’re already behind the curve. Your small business should be using financial accounting software religiously, and ownership/management should be versed in at least being able to run reports regularly. Knowledge is power in the cash game much the same way as knowing what your personal checkbook balance is before making a purchase.

2. Reprioritize Your Accounting Priorities– As a small business, it can seem that everything revolves around keeping your operations going as much as possible and spending money to get new sales. From an accounting perspective, your first priority should be the collection of payments already due. Your bills can be paid on their due date, not earlier. Outstanding payments are your lifeblood to keep going down the line. Small businesses too often make the mistake of riding on credit to solve their liabilities when there are cash delays, hoping not to make overdue customers upset. Too bad; a late-paying customer is a non-paying customer until resolved. Collections are a reality.
   
   
3. Make Your Invoices Easier to Pay– Many small companies limit their means to receive cash by forcing customers into only one payment method. For example, some companies insist on only money orders or cash. If customers want to use their credit line, why is it your business’ concern? Make it possible for them to use every payment method reasonably possible. More than likely, cash flow will increase as your customers gravitate to a payment tool they are comfortable with (and they may end up buying even more doing so). You don’t need to make a big outlay for some methods. Tools like PayPal and Square make it easy to accept credit card payments, for example.
   
   
4. Discount Early Payers, Penalize Late Payers– You’re losing the ability to pay your bills the longer you go without cash. Incentivize your customers to pay early by giving them a discount on a sale if they do so on a big purchase. In the same vein, charge an interest penalty on those characters who pay past your due date by requiring them to agree to it with the purchase terms. This makes up the difference that you will otherwise eat having to finance paying your bills from your own credit.
   
   
5. Sell Your Receivables (Factoring)– When you have big players who just aren’t paying in a timely manner, you may want to consider liquidating those accounts receivables to a third party with cash upfront. Yes, you will take a hit, usually a larger percentage loss (10 to 30 percent of an accounts receivable total), but you will still get a good portion of cash in your hand to move on, pay bills and keep your business lights on. Just don’t do business with that customer again going forward. Lesson learned.
   
   
6. Talk to a Human– For example, let’s say you have a client who is delaying paying a $600 bill. Maybe you send some back-and-forth emails with no resolution. Simply picking up the phone and talking personally can do wonders to speed up a resolution. Sometimes, a human touch cuts through all the mess and convinces a party to do the right thing. Your cost is minimal to reach and try to talk, being at most the cost of a long-distance phone call if it applies.
   
   
7. You’re Not a Credit Card Company Yourself– Draw a hard line on customers who want to ask for an extension beyond your payment due dates. Doing otherwise means you’re essentially giving customers interest-free loans at your expense. This also involves getting used to running aging reports and spotting problem accounts before they get extremely old. In the rush of business, it’s easy to stop paying attention, which can be a fatal mistake in cash flow accounting. It only takes one payroll cycle to turn your company upside down when paychecks can’t be issued.
   
   
8. Carry a Reserve– Just like your personal finance life, having a cash reserve in your business is just plain smart. It sounds almost impossible for a small business trying to grow fast, but a reserve provides the means to deal with emergency cash pinches that occur all the time when money matters the most. Cash reserves can be made possible by taking the difference in an expense, chasing a discount or savings, and putting the difference that would otherwise be spent into your company reserve account instead of spending it elsewhere. Just like when you shave off change in your personal spending, the bits and pieces add up quickly to a sizable savings cushion.
   
   
9. Audit Your Company Spending Regularly– Many small businesses take on pay-as-you-go services and subscriptions because they make a lot more sense on a budget. However, many of these charges become forgotten over time and add to your operating expense side. Annually or bi-annually, you should audit your expense side to see if what you are paying for to run your business is still needed. Canceling or freeing up some of these unnecessary services can result in more cash flow by reducing your liabilities.
   
   
10. Tax Benefits– Many small businesses can be eligible for grants, tax credits, tax deductions and more from cities, counties and the federal government pushing business growth. But few realize these are available or know how to get them. Work with a skilled accountant to see what is available for you.

 
Frank Jenkins, CPA writes for CountingWorks, an accounting news and advice website. Reach him at [email protected].

 

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