Cash flow is essential for the healthy growth of any business. Making sales and delivering your products or services to the customers is great, but it doesn’t amount to much if you don’t have money on-hand when you need it. A lot of small businesses end up taking out loans to cover short term revenue gaps, and end up paying out interest over time for that momentary need.
If you’re going to keep your business going strong for years to come, you need to get past this hurdle. Here are five steps to how to improve net cash flow and start building the liquidity you need to overcome growth plateaus:
1) Smarter Invoicing
Consistent, prompt, and on-time invoicing is key to generating consistent cash flow that you can predict (and start to plan growth around). Surprisingly, a lot of businesses don’t get invoices sent to their customers in a timely manner. A delay of even a couple days can have a major effect on your cash flow for the month.
Sending invoices regularly is easier with software designed to help. Most accounting software comes with built-in a invoice generator that inputs information about your company into a template, as well as features that track your invoices for you.
Working directly with your customers can make receiving payment easier, too. Most companies experience cash flow shortages regularly at certain monthly intervals — around rent on the 1st or when a regular bill comes in from a large vendor, for example. Often, sending an invoice when other big expenses come up leads to your invoice getting pushed. Allowing regular clients to schedule payment deadlines when they have more cash flow can help ensure prompt payment — which is better for your own cash flow in turn.
2) Get Paid
Another great way to free up cash flow? Stay up to date on your invoices. Sounds too easy, but often it just requires a little diligence.
Imagine this: After the standard 30 days, a company still hasn’t paid up on their invoice. You can keep waiting, maybe letting it fall into the pile of pending invoices you’ll follow up with later on —usually, in a panic. Or, instead, you can pick up the phone and issue a polite reminder to their accounting office. Hopefully, that call will get the ball rolling.
Automation is another tactic that’s increasingly popular with startups and small businesses for tracking invoices better. AI-driven bookkeeping will help you stay on top of pending invoices, schedule follow ups, and log paid invoices without the need for human oversight. That takes the time consuming and sometimes awkward task of following up off your plate.
3) Track Money
Every business should keep track of their expenses, if only to stay on the right side of the IRS. But what do those receipts add up to? Can you take insights from your expense reports to help you cut costs and better track where your money goes?
First, there’s the money you spend. Expensing is good for your taxes, but it can cut into your cash flow. A daily latte at the cafe around the corner adds up quickly. Simple measures like making your own coffee can free up cash fast.
At the end of each month, take a moment to factor in occasional expenses, such as quarterly taxes and annual fees or bills.
Better tracking helps business owners find where money goes missing. Cash flow often involves literal paper currency. And, unfortunately, people will steal money. Dipping from the till is a common way for thieves to steal from their employers. Keeping better track of your cash will uncover where five, ten, or a hundred dollars go missing. Over time, close tracking can save you thousands.
4) Review Vendor Costs
Some expenses seem like second nature after a while. The bill comes in, you pay it. In many instances, you can get a better price on vital services by renegotiating everything from interest rates on debt, payment processing, utilities, or rent.
Accounting is a major expense for a lot of small businesses. Companies spend a lot of money to keep their books in good order. Usually, a lot of that vital bookkeeping is little more than simple organization. By taking on basic bookkeeping yourself or finding a more affordable alternative, you can save the kind of money needed to pool cash and create liquidity.
5) Say No to Losses
Early on, small businesses think they need to accommodate every client who comes their way to stay afloat (which, hey, is usually true!) Once established with a regular clientele, this mentality can do more harm than good though. Some clients can drain your company resources and actually cut into your cash flow.
A client who always pushes for more from your company for free is a client who costs your company in multiple ways: time, payroll, and available bandwidth for other clients. If you are still working on a project after its invoice is paid, you’re cutting into cash flow for future projects with that client.
While some bonus or makeup work is necessary from time to time, learn when to say no (even if it means severing ties).
How can you automate your accounting better?
Click here to check out another article on cash flow by Botkeeper on Business Collective.