How to Improve the Cash Flow of Your Business? | 5 Proven Ways to Increase Cash Flow

Anurag Gade Anurag Gade
May 16, 2022 7 min read
How to Improve the Cash Flow of Your Business? | 5 Proven Ways to Increase Cash Flow

Nothing can change the fact that we all enter into a business to earn money. Setting up your own business is not easy. There are many things one has to cover before they can get their business up and running. One of the critical components of every business is the initial investment. Irrespective of the kind of business you intend to start.

There is more to investments than just the investment. People become so desperate for profits that they overlook that business is solely dependent on the outside market. But before moving on to the gains, one has to ensure a sufficient cash flow required for sustaining the business. Every business entrepreneur knows the importance of not letting their cash flow become stagnant.

As a result, they are always looking for methods and strategies that will help improve their business cash flow. In this article, we will walk you through the different ways using which you can significantly improve your business cash flow.

What Is Cash Flow?
Ways To Improve Your Business Cash Flow

What Is Cash Flow?

As a business owner, you understand the importance of staying on top of your cash flow to keep your business sustained. But what exactly does cash flow mean? In simple words, cash flow refers to the net amount of money flowing in and out of a company.

Every organisationโ€™s success is mainly dependent on how positive its cash flow is. A positive cash flow is when a company brings in more money than it sends out. The cash that goes out of the company generally consists of debts and other expenses.

Ways To Improve Your Business Cash Flow

In order to sustain itself in the business industry, the key ingredient is to always keep positive cash flow. Staying on top of your cash flow allows you to see the broader picture, wherein you will be able to scope out areas of improvement and work on the same.

Opt For Leasing Instead Of Purchasing

Your businessโ€™ daily expenses are going to be divided into different categories. All these categories will be required to be fulfilled whenever they are due. Apart from that, every business needs some money in hand for day-to-day operations. This includes supplies, types of equipment, and your entire workplace. In such cases, opting to lease all these things will leave you with enough money at the end of the day.

When you lease, you pay for the leased commodity in smaller increments from time to time. This saves you from spending all your money at the same time. Leasing is a proven way to help increase cash flow. Moreover, since lease payments come under business expenses, they can always be written off your taxes.

Buying, on the contrary, will cause you to spend all your money at once, leaving you with little to nothing when in need. Therefore, unless your business is booming with cash, it is always better to lease instead of buy.

Create A Cash-Flow Forecast

In order to sustain, every business must have a positive cash flow. This means the company should bring in more money than it sends out. To determine whether you have a positive or a negative cash flow, you need to first create a cash flow forecast. There are several benefits to a cash-flow forecast.

For starters, it gives you an estimate of the company's total money and spending in a year. Next up, you get a clear idea about the surpluses and shortages. With all this information at hand, you are better prepared when it comes to making decisions about new purchases or borrowing new facilities.

CashFlow Forecast Template Example
Cashflow Forecast Template Example

A cash flow forecast is a vital tool for every growing business as a forecast helps predict profitability and determine the companyโ€™s future cash flow situation at the same time. Moreover, this allows business owners to have increased flexibility, higher efficiency, and the ability to map out more and more potential growth opportunities.

Better Terms And Prices With Your Vendors/Suppliers

Being in a business is more like being in a relationship as both these things depend on the give-and-take policy. But in the case of businesses, you first need to give a whole lot before you can reap its benefits. This includes taking care and keeping your vendors/suppliers happy. Keeping these people happy primarily includes building a long-term relationship with the team.

Once you have taken care of this, the next part includes maintaining the relationship. Otherwise, youโ€™d just be overspending on things that you know arenโ€™t going to last. To do so, you will need to set up better terms and conditions for both parties.

In terms of suppliers, you can negotiate favourable prices for both you and them. One of the common practices is asking for bulk inventory rates. If your suppliers allow for bulk inventory rates, you are likely to score more discounts, lower pricings, or other better terms of trade. Establishing better terms and prices with your suppliers can help you drastically cut down on costs and boost your cash flow.

Encourage Your Customers To Make Early Payments

One of the primary reasons why your businessโ€™ cash flow isnโ€™t improving or has become stagnant is because of pending payments from the customers. The majority of the businesses right now are awaiting huge a chunk of payment from their respective customers.

Know that the sooner you receive your payables, the better your cash flow becomes. To make this possible, you have to implement different ways that will encourage your customers to make early payments on their purchases.

Immediate Invoices

To begin with, start sending out invoices immediately after a particular order is dispatched. Ensure the invoice is easy to read and the terms are clearly stated for the customers to understand. An invoice with a due date and a late penalty charge is bound to get the customerโ€™s attention. Finally, layout clear instructions regarding the different forms of payment accepted.

Early Bird Discounts/Incentives

Everyone enjoys getting a little extra for a little less. You can offer incentives or other suitable rewards for customers who make early payments by banking on this principle. If you have customers paying their bills ahead of time, it creates a healthy situation for your company. In return, you can surprise them by adding a suitable incentive or taking a little off the top.

Set Up A Quick-Payment Option

While the whole world goes digital, you canโ€™t afford to stay behind. The 21st century demands you to be swift in your actions. A quick order dispatch requires a fast payout.

Waiting for a cash payment or a bank transfer can be a tedious task. And by tedious, we mean it means more waiting on your end. As an alternative, you can look to set up a quick payment option that will help save valuable time and allow your consumers to transfer money with ease.

Cost-Cutting

The outbreak of the pandemic has been tough on all of us, especially in the business sector. As the world slowly rises from its slumber, businesses find it difficult to keep themselves afloat.

If your company too has suffered or slowed down during COVID, then you may want to look at cutting down on costs. Cost-cutting is a technique that is implemented everywhere globally.

It generally includes taking stock of your inventory and dumping things you have been paying for but do not need. For example, if you are in the restaurant business, you can look at replacing the majority of your glass utensils, such as glassware and cutlery, with plastic to help save on costs.

The best way to find out which expenses you can cut out is by taking stock of everything there is. Are there any services you are paying for but arenโ€™t using? Or are there any insurances you no longer need? Is there excess stock of which you have zero need?

These are some things you cannot track while youโ€™re manning your everyday business. But taking the time out to take stock and complete this admin task will put you better financially.

Conclusion

Whether itโ€™s a small retail shop or a full-fledged business in the clothing industry, everything has a parameter based on which you can track your success. A healthy cash flow is one of the vital parameters that indicates you have a healthy and highly efficient business at hand. You can use either of the strategies mentioned above to increase your current cash flow.

Note that your business does not solely depend on these strategies when it comes to increasing the cash flow. You need to club these techniques by making the right decisions concerning your customer servicing, marketing, product development, and sales acquisitions. All these things in combination will give you a healthy business setting that comprises a cash flow that is only improving by the minute

FAQs

Why should a business always have a cash flow forecast?

Creating a cash flow forecast helps keep you on top of your finances by allowing the following things,

  • It gives you a quick estimate about when and how much collectables you are going to receive or spend.
  • It gives you complete visibility of your companyโ€™s finances.
  • Allows you to correct your course at any point in time.
  • It helps improve the accuracy of cash inflow and outflow.
  • It saves you from manually inputting the payment data every time.
  • It helps keep sight of both your short and long-term investments.

What are the ways of improving cash flow?

Apart from the ones mentioned above, the following are some of the ways using which you can improve your cash flow.

  • Establishing a healthy relationship with your bank.
  • Follow up with your customers after dispatching the invoice.
  • Payment extensions.
  • Use your credit card strategically.
  • Increased prices.
  • High-interest savings account.

What is a negative cash flow?

A negative cash flow is when your company spends more money than it earns. A negative cash flow is an indicator of an inefficient business.

How often should you update your business plan?

To update your business plan, you must keep reviewing it from time to time to ensure you anticipate all the trends and challenges in the near future.

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