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If you look up how to improve cash flow online, you will find multiple reputable sources explaining the importance of cash flow to a business, both small and large and all sizes in between. Most sources will tell you cash flow is the lifeblood of your business or positive cash flow is critical to your business's financial health analysis.
While this is all true, we decided to dive a little deeper and provide actionable tips to execute in order to affect change. Whether you’re a small business that is experiencing rampant growth and increasing profits or you’re struggling to manage positive cash flow, whatever the case, no company should ever be caught with their guard down.
Even large, profitable businesses can be impacted by cash flow disruptions. One of the most common scenarios we have seen starts with business payables being due before receivables. This typically results in cash flow problems and produces a domino effect. When bills aren’t paid, bigger problems surface.
To gain control of your company’s cash flow, consider the following tips.
1. Lease > Buy
It’s important to maintain positive cash flow to sustain day to day operations and to grow your business. While focusing on the bottom line, buying equipment or supplies may seem logical because leasing ends up being more expensive; however, the benefit of leasing is payment increments. Incremental payments can benefit the stream of cash flow.
Leasing enables small businesses to spread out costs and avoid the risk of equipment or supplies becoming obsolete because you aren’t stuck with it forever. An added bonus is that leasing is typically eligible for tax credits and can be written off as a business expense.
2. Discount Incentive
Consider incentivizing suppliers to pay early with discount pricing. This strategy is mutually beneficial to both the customer and your small business. Cash flow comes in early, bills are paid on time, and cash flow remains positive.
Speeding up payments can help suppliers to improve their working capital position and to continue growing the business and also build relationships with their suppliers.
3. Inventory Update
Find out what is taking up space on the shelves. After conducting an inventory audit, assess what goods are static and are tying up cash. This kind of inventory is like an anchor and will hurt your businesses cash flow position.
Whatever isn’t selling, cut it loose. Free up shelf space and double down on whatever goods or services that are in high demand.
4. Negotiate
The art of negotiation can be extremely underrated at times. If your focus is on strengthening supplier relationships and building trust, explore opportunities to create a better deal.
For example, if you offer an early payment discount to your supplier, chances are they too will be willing to do a trade off and offer your business a discount in return. Never miss out on an opportunity to create a better deal.
“Revenue is vanity, profit is sanity, but cash is king.” —Unknown
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More often than not, business owners overlook or miss out on opportunities to improve their cash flow. It starts with making small changes like the above four steps. It’s important to regularly update your business plans and run forecasts to anticipate challenges or trends before they impact your profitability. This simple change allows businesses to be in a position of response versus being in a position where they are forced to react.