For small businesses to remain afloat they require healthy cash flow. Improving cash flow may sound simple; earn more and spend less, but managing cash flow can be far more challenging than it may seem.
Good cash flow management helps sustain business during times of cash shortfall and excessive expenses. Managing cash flow requires proper planning and forecasting to avoid severe cash shortages. Here are five ways to keep on top of your finances and boost your business’ cash flow:
Review payment terms
Establishing payment terms is essential for good cash flow. Encourage early payments from your customers/clients by providing discounts. Be sure to follow up on overdue accounts and include penalties for late payments such as interest or fees.
Minimising your overhead expenses such as staff overtime, utility bills etc. is one way to improve your cash flow. Many of your operating expenses can be reduced, or even eliminated, without affecting the rest of your business, for example, reducing energy use can significantly lower your power and electricity costs.
Issuing an invoice to your customers and clients as soon as the work has been completed increases your chances of getting paid quicker. Consider using cloud accounting software to prepare and send out invoices immediately, which will save time during busy periods.
Re-negotiate contracts you have with long-term suppliers and service providers to work out a more cost-effective arrangement. Contracts may have add-ons, services or subscriptions that your business no longer needs.
Reevaluate your pricing
Evaluate your business’ current pricing strategy; are your prices too affordable or expensive? To remain competitive, prices need to be constantly reviewed to ensure your price point improves (not hinders) your cash flow.