14 Small Business Tips to keep your Cashflow Positive

While seeking small business tips from your industry peers is invaluable for small businesses, cash flow stands out as a universal metric of success across nearly every sector.

What is Cash Flow?

Understanding cash flow is essential for any small business owner. It’s the movement of money coming in and out, measured over a specific period. At its core, healthy cash flow tells you if your business can consistently cover its expenses and generate a profit.

Here is a breakdown:

Inflows: This represents all the money coming into the business. Examples include revenue from sales, investments, or loans.

Outflows: This represents all the money going out of the business. Examples include rent, salaries, supplies, and paying off your loans.

Cash flow is different from your profit. In fact, you could be showing a profit on your income statement (a financial document summarizing your revenue and expenses in a period of time) but still have negative cash flow. This can happen because you are not collecting payments from customers quickly enough, or your expenses are too high.

How to use cashflow to your advantage?

Hold off on that Google search for “accountant for small businesses” for a few more seconds! By implementing some smart strategies, you can significantly improve your cash flow and unlock its many benefits. Here’s what a healthy cash flow can do for your business:

Paying bills: You will have enough cash on hand to cover your ongoing expenses and avoid late fees or penalties.

Business Growth: Positive cash flow will empower you to invest in new opportunities, hire new employees, or expand operations over to more profitable areas.

Financial stability: A consistently positive cash flow will help your business deal with economic downturns and unexpected events (aka life).

Identifies Potential Problems Early: Negative cash flow trends can serve as an early warning of upcoming financial trouble.

How to Keep your Small Business’s Cashflow Positive?

Smoothen your Billing and Collections

1. Issue invoices asap after completing work or delivering your products.
2. Offer convenient local payment options to encourage faster settlements.
3. Optional: Implement timely payment discounts to incentivize quicker payments.
4. Implement a clear collections process with timely follow-up for outstanding invoices.
5. Optional: Offer tiered overdue payment fees to encourage on-time payments.

Optimize Inventory Levels

1. Maintain balanced inventory levels in your small business to avoid tying up cash in excess stock.
2. Implement a just-in-time (JIT) inventory system, if possible, to minimize storage costs.

More Ways to Maintain Healthy Cashflow

1. Negotiate longer payment terms with suppliers whenever possible. This frees your cash flow in the short term.
2. Regularly review expenses like rent, utilities, and subscriptions. Explore options for better deals or switching to alternative providers.
3. Differentiate between necessary expenses and ones without which you can live. Allocate funds towards essential operations first.
4. Regularly create cash flow forecasts to predict future financial needs and identify potential upcoming shortfalls.
5. Aim to maintain a cash reserve to cover unexpected expenses or seasonal fluctuations in business activity. This buffer can be a lifesaver when unforeseen circumstances arise.
6. Outsourcing certain tasks can free up your time and resources to focus on core business activities that generate revenue.
7. Maintain meticulous records of all income and expenses. Categorize them to understand where your money comes from and goes. Popular accounting software or even well-organized spreadsheets can help.

Remember:

Cash flow management is an ongoing process. Therefore, you would need to continuously monitor your financial situation and adapt your strategies accordingly. You need to stay informed about market trends as well, that impact the performance of your industry. In other words, staying informed about these trends allows you to anticipate potential challenges and opportunities, further optimizing your cash flow management.

Another one of small business tips: Don’t try to be a jack-of-all-trades. Identify your business’s core strengths – the things you do best that bring in revenue. Outsource tasks that fall outside these areas.

Finally, after using a free consulting call with one of our accountants, the least you will have is a free analysis of your financial operations. However, the most you could gain is truly limitless!