Eight ways for small businesses to improve their cashflow
Published on 2021-12-15
Category: Cash Flow Management, Small Business Finance
Businesses must find a regular and growing revenue stream to meet their business goal and objectives. A steady cash flow can also help them offset the ongoing expenditure to continue operations. However, small businesses may often face a cash crunch due to their dependance on a handful of clients for their revenues. According to the Australian Bureau of Statistics, 41% of businesses in February had cash in hand that could only run operations for three months*. This article will discuss some financial management tips for small businesses to improve business cash flow.
Send invoices on time
Small businesses must be aware when they must raise invoices. Usually, the payment terms require the client to pay only after a preset number of days after the invoice is sent out. Any delay in sending invoices will also mean the client has that additional leeway to pay later. Small business owners can use invoice management softwareautomate their invoicing process.
Ensure loan repayments are on time
Businesses must calculate the impact EMIs have on the regular cash flow. The loan repayments schedule must match the timeframe when the company receives a large chunk of its revenues from clients. Moreover, as there are several types of loans available, the business must choose loans available at lower interest rates. Repaying EMIs on time can also lead to a better credit score.
Lease office supplies
Keep in mind that buying office supplies can increase burden on the company finances,all at once. It can affect the cash flow and the availability of working capital for the company. It is suggested that all capital equipment and real estate must be taken on lease. It will improve business cash flow.
Forecast cash requirements
You must go through historical information and have an idea about the periods of the year when you must have additional cash in hand. It can help you be aware of such requirements beforehand that can help you keep aside adequate finances to meet the needs. Also create a contingency fund that can help you address such sudden requirements of finances.
Manage cash receivables properly
You must get into payment terms with your clients onmutually beneficial terms for both your businesses. Use software to manage the entire receivables process, including sending out timely payment reminders to clients. You can also provide incentives to your clients for early payment. Also, providing multiple payment options to customers can improve business cash flow.
Do credit checks on your clients
How do you understand whether your clients can pay your invoices on time? Always insert a clause in the client agreement that will allow you to undertake periodic credit checks on your client. You can offload the assessment work to a partner who can determine whether your clients can pay your invoices on time.
Assess your inventory
In some cases, it will be prudent to assess the inventory lying idle in your warehouse. It will help you ascertain the goods that are not moving at all or moving slowly. You can make strategic decisions about producing these goods. You can also extend discounts across the distribution chain and end customers.
Evaluate ongoing expenses regularly
You must constantly assess the ongoing expenses to continue operations. It will help you assess the various cost heads absorbing a chunk of your finances. It is essential to plug this outflow to ensure that the expenses do not cause any burden on the cash flow. You must streamline processes and purchase efficient equipment to prevent leakage of finances.
Small businesses must have robust workflows to smoothen their cash flow. It will help them to prevent a cash crunch at crucial junctures. We have discussed some tips that you can use to improve your cash reserves. Analyse the cash flow process and take necessary steps to optimise the workflows involved.
*Source: Australian Bureau of Statistics
Tags: Cash flow, Calculate, Small business owners, Loan repayments, Types of loans, Improve business cash flow, Financial management tips for small businesses
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