Cash flow is important to all businesses, especially small businesses that are growing gradually. With a tight budget and hard-to-get bank loans, small businesses that are cash-strapped can easily wear out and go into oblivion.
If you’re a small business owner looking to improve cash flow, you needn’t worry. While maintaining and improving cash flow isn’t easy, it isn’t impossible either!
Here are 8 tips to help you improve cash flow in your business.
Sell Excess Equipment
Idle and excess equipment and machinery can take up space and add to expenses in the form of maintenance and repairs. So do away with such equipment to get the salvage value and possibly, a taxable gain too! If you sell below the book value, use the tax loss to offset other company profits.
In addition to this, if you must buy new equipment, consider buying used. To save minimize or eliminate costly repairs, get equipment serviced regularly. Favor reconditioned and replacement parts from third party suppliers over original manufactured parts.
Alternatively, lease equipment so you don’t have to bother with maintenance and repairs. Leasing equipment also allows you to expand your business without tying up cash or lines of credit.
Tighten up Inventory
Overstocking your inventory means tying up a substantial amount of cash. Avoid this practice and be wary when suppliers offer big discounts.
Examine your inventory and identify what’s moving and what’s not. Do this regularly to spot trends, items that aren’t selling, and faster-selling items. Sell outdated stock at discounted prices or at cost to help improve cash flow.
Use Interest-Earning Accounts
Interest-earning accounts have a minimum balance requirement and interest rates are usually below those on savings accounts, money market accounts, and certificates of deposit. As such, keep the bulk of your money in a higher-paying account and transfer funds to your interest-earning account each cycle to meet the minimum requirement.
Pay on Time
Delaying payment can result in extra fees and charges, so always pay your dues on time. However, don’t write all your checks the minute you get paid; to maintain cash flow, wait until the due date is near. Switch to electronic payment methods so that you can disburse money just a day or two before payment is due.
Make Payroll Bi-Monthly
All businesses have different revenue streams, depending on which business owners plan cash flow and payroll. If you’re planning to go for a cycle that pays employees twice monthly, opt for a bi-monthly pay program instead of a bi-weekly one. The former has only 24 pay cycles each year, while the latter has 26; by going for a bi-monthly pay program, you can reduce administrative costs related to payroll processing.
Bill Immediately
A lot of businesses extend credit to clients or customers. If your company practices this too, it may strain your cash flow. To avoid payment delays, bill purchasers quickly and make sure that invoices are delivered within 24 hours of the sale.
Furthermore, track invoices and send reminders to clients or customers well before the due date.
Encourage Faster Payments
Credit sales can create significant pressure on a business that is already suffering from cash flow. To encourage faster payment, here are some tactics you can implement:
- Require deposits on large or custom orders.
- Offer discounts for making payment upfront.
- Enforce strict credit requirements. Have a written policy in place and communicate the same to clients or customers.
- Make payments easy for purchasers by offering various payment modes. That being said, avoid checks or other methods that can delay payment.
Get Rid of Old Debt
Recovering old debt can be a waste of your resources, so outsource the job to a collection agency. To avoid bad debt in the future, consider selling invoices to a small business financing San Diego firm. Invoice and accounts receivable factoring can not only boost your cash flow immensely, but also eliminate the need for you to keep a tab on customer payments.
Conclusion
Good cash flow management can help you grow an established business. With the tips given here, you now know how to improve cash flow in your small business. So get started on implementing these tips right away!