The movement of money in and out of a business is what cash flow is all about. Inflows are represented by cash received, whereas outflows are represented by money spent. As a rule, you must prioritize bookkeeping to come up with efficient customer retention strategies that generate a consistent flow of cash for your business.
Cash flows are often divided into three categories, namely operating, investing, and financing. All funds generated by a company’s principal business activity fall under operating cash flow. Meanwhile, all acquisitions of capital assets and investments in other business endeavors are categorized investing cash flow. Finally, cash net flows used to sustain the company and its capital are depicted in the financing cash flow.
Your company’s cash flow is its lifeblood. Positive cash flow indicates that you are successfully running your business in the right direction towards growth, while negative cash flow means otherwise. As much as it can be daunting to find ways to boost your organization’s profit margins, it only takes a bit of ingenuity to reach a significant difference.
Impact of the Pandemic on Business Cash Flows
The year 2020 was full of challenges and uncertainties for businesses, regardless of industry. The situation for businesses has changed—from switching from in-person to online sales and conducting core business operations digitally. In the fast-track of digitalization, your financial strategy should adapt well as you move towards the years to come.
While the core tenants may remain the same from year to year, financial lessons learned from the previous year should help you prioritize your finances effectively. You’ll need a clear vision of your business trajectory and how much money you’ll need to keep your company afloat amid unanticipated circumstances. With that said, read on to learn about strategies to improve business cash flow and manage finances efficiently.
6 Strategies to Improve Cash Flow
1. Consider leasing instead of buying
Leasing enables you to pay in small installments, which improves cash flow. An added benefit is that leasing payments are considered a business expense and can thus be deducted from your taxes.
Renting an office space and equipment can be more expensive than buying. This may appear counterintuitive to a business mainly concerned with the bottom line or your income after expenses are deducted. However, unless your company has an abundant cash flow, you’ll want to keep your overhead costs at a minimum for until you’re able to afford purchasing your own office and equipment.
2. Send prompt invoices
A small business’s lifeblood is sales and invoicing. If you don’t send invoices, you won’t get paid. That’s all there is to it. So ensure that you keep track of your customers’ invoices. The faster you send out bills, the faster money comes in.
Consider switching to a cloud-based tool with appealing, simple-to-create invoices if your present invoicing process is time-consuming. You can check out tools like QuickBooks Online or Zoho Books—both have excellent invoicing features that can help you improve your cash flow and speed up your invoicing process.
3. Enhance your inventory
Run an inventory check regularly. Take note of the items you have that aren’t selling as quickly as your other products as they eat up a lot of cash and storage space. Instead of buying more of what isn’t selling, get rid of them by selling them at a discount or selling them to excess surplus buyers.
It’s difficult to move away from products you’re fond of, expecting that one day they’ll suddenly become in demand. But this notion can only do more harm to your cash flow than good. Strive to be more objective to make wise business decisions.
4. Reward early payments with discounts
For the most part, customers enjoy a good deal, let alone an incentive. By offering reasonable discounts to your clients who pay their bills in advance or on time, you’re fostering a win-win situation both ways. Needless to say, getting the money in early benefits your cash flow.
5. Make use of electronic payment methods
By implementing online payments systems, you may postpone payment until the morning of the due date. The small window allows you to organize your cash flow until the deadline.
Another way to enhance your cash flow significantly is to use a business credit card, as some provide a grace period of up to 21 days. But keep in mind to use your business credit card responsibly to avoid going into unmanageable debt.
6. Plan for market sales expansion
Another way to boost positive cash flow is to strategize for new revenue streams. Gather your dream team, sit down with a cup of coffee, and brainstorm innovative tactics to extend your sales market.
Take this time to get your creative juices running and come up with new ideas to grow your products and services. You can consider a few fresh sales possibilities, such as offering new services or products, experimenting with a new marketing strategy, or advertising more to tap on more customers and attract more purchases.
Summing It Up
The upshot of businesses that run efficiently and smoothly is a healthy cash flow. While following any or all of the strategies mentioned should help you improve your cash flow, you’ll also want to make sure you’re making the best marketing, customer service, merchandise development, customer acquisition, sales, and financial decisions possible.
It’s crucial to continuously evaluate and update your business plan on a regular basis to ensure you’re aware of emerging trends and difficulties. When your business is well-prepared for any circumstance that could affect your cash flow significantly, you can buy more time to find opportunities to get back on track and take better control of your inflows and outflows.
