How to improve business cash flow

Cash flow and profit are critical financial indicators in the industry, and it’s not unusual for someone new to finance and accounting to have the two words mixed up. However, cash flow and profit are not the same things, and knowing the difference is crucial when making important decisions about a company’s success and financial wellbeing. 

Cash flow is an indicator of how much money flows in and out of the company for a given period. When the cash balance is positive, you have more money flowing in than going out, allowing you to pay your debts and fund other expenses. You can’t afford to make those payments if the cash balance is negative. Your company will shut down if you don’t have enough cash on hand. Managing your cash balance entails determining where you’ll have cash in your hands, determining how to get some of it in your hands quicker, and determining how to maximize your spending to avoid cash flow issues. 

Cash flow is further divided into three categories:

1. Financing cash flow: This applies to the flow of money from a company’s investors, shareholders, and creditors. It is the net cash provided to finance the business, which can include debt, equity, and dividend payments. 

1. Investing cash flow: The net capital created by a company’s investment-related operations, such as securities transactions, the acquisition of physical assets like machinery or buildings, or the selling of assets, is referred to as net cash. This figure is frequently negative in stable firms that are currently invested in their enterprises.

1. Operating cash flow: The net cash provided from a company’s daily business activities is referred to as this. Positive cash flow is expected to continue the market success of actively growing and developing industries.

Why is having a stable cash flow critical for your business?

• You’ll have enough money to spend on new products or businesses.
• You’ll be able to deal with sudden emergencies that could cost you a lot of money.
• You’ll be able to pay the suppliers on time and take advantage of reduced rates if you do so. 
• If payments from main clients are overdue, you can easily afford simple operating expenses.

How to improve your cash flow

• Prepare for future cash requirements by anticipating and planning ahead.

You can create a prediction for your company based on past performance if you keep precise, timely, and appropriate (ART) accounting documents. Businesses should, at the very least, review their cash flow on a monthly basis. 

• Organize the payables method.

Improving the company’s cash flow would include establishing and coordinating your accounts payable plan. It is wise to invest in accounting software if the accounting department does not already handle your accounts. The most critical invoices should be communicated to the staff so that they can be billed first. Keep in mind the overdue invoices should not be overlooked. 

• Increase the amount of money you have in your receivable accounts.

You will keep on top of overdue invoices and shorten the time it takes to get paid by actively monitoring the accounts receivable. One way to do this is to encourage consumers to pay on time. 

• Control Access to Bank Accounts

It is essential to safeguard investments in order to preserve a positive cash flow. Having adequate protection in place is the perfect way to prevent theft and improper use of the company’s bank accounts. Holding the number of people who can access these accounts to a bare minimum, maintaining the IT infrastructure, regularly checking passwords, safeguarding your credit and debit card details and bank accounts, and using a dedicated computer for banking are also popular precautions. 

• Existing Service Contracts Should Be Revised

Another way to improve cash flow in your company is to check service agreements and contracts on a daily basis. To find savings, start by looking at the internet, phone bills, copiers, tech service, and janitorial/building maintenance contracts.

How to grow your business cash flow monthly 

• Lease, Don’t Buy: You pay in tiny installments while you lease, which helps with cash flow. Leasing fees are deductible as a company benefit, but you can write them off on your income. 

• Offer Early Payment Discounts: Everyone enjoys a good deal, and giving clients credit for paying their bills on time creates a win-win opportunity for all of you. Of course, getting the money early helps the cash flow.

• Use third-party services for finance, and IT needs: Many small companies cannot afford to hire a full-time chief financial officer (CFO) or information technology expert. Third-party accounting and IT providers have five-star assistance without the six-figure annual expense of these situations.

• Use Electronic Payments: If you pay online, you will put off paying a bill until the morning of the due date. Your cash balance will increase as a result of this time purchase. You can also use a company credit card, as some of them have a grace period of up to 21 days, which can help you boost your cash flow significantly.

• Take Out A Small Business Loan: Taking out a short-term loan or line of credit is another way to boost cash flow. An investor grants you a lump amount of money that you pay back in daily installments for a limited period of time for a fixed-term loan. A lender gives you a maximum loan balance that you can use if you need money, and you only pay interest on the money you need.

Having a new business can be overwhelming, especially when filling out taxes or doing accounting. Our team has the professional experience to help you with those matters. Feel free to contact us.