In 2022, there were 33.2 million small businesses in the US. 38% of those businesses say they failed because of a lack of cash.
Any business must understand its cash flow and how it changes over specific periods of time. The goal for any business should be positive cash flow so they have access to funds when needed.
If you own or manage a business, you need a firm grip on business cash flow and may need ways to increase the company cash flow to keep it running smoothly. Read on to learn more.
What Is Cash Flow?
Cash flow for a business is the cash coming into a business and the cash flowing out. Positive cash flow is coming in, usually from the business’s sales or services. Negative cash flow is the money leaving the business for things like inventory, rent, payroll, and equipment.
Ultimately for a business to be successful, they need more positive cash flow than negative. Understanding the cash flow is critical for a business to make sound decisions about how it operates and whether it can grow.
Projecting Business Cash Flow
Many businesses are seasonal or have times of the year when they are swamped and other times when business lags. To maintain a positive cash flow, it’s critical to understand the ebbs and flows of the business.
Part of a sound business plan is knowing your expenses. A company needs a sound budget to decide how and when to spend money. Experts suggest projecting business cash flow into the future, so you can plan and have a guidepost for making decisions for the business.
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Cash Flow Strategies
You might be looking for ways to improve business cash flow inflows for your business to maintain a better positive cash balance. There are several ways you can improve the cash flow of your business. Let’s take a closer look.
Lease Instead of Buy
As you consider expenditures for equipment for your business, one strategy might be to lease new equipment instead of buying it.
In the long run, it might be more economical to buy. Yet, buying can mean a significant cash expenditure. Leasing equipment can reduce that large cash outflow and help keep your cash flow even.
This can reduce your short-term expenses. It also prevents the need for updating old and outdated equipment that was bought by the business.
Send Invoices More Frequently
Many businesses will handle their billing by only sending monthly or quarterly invoices. You might opt to send out invoices more frequently.
The thinking here is that the quicker you get the bills into your customer’s hands, the faster they can pay you. The longer you hold an invoice before sending it is like carrying the debt for your customer.
Monitor and Adjust Inventory
Another important cash flow strategy is monitoring and adjusting the amount of inventory you carry carefully. If you have slower seasons or months of the year, it doesn’t make sense to pay for and keep the same amount of inventory on your shelves.
Likewise, you should constantly evaluate what’s selling well and what isn’t. Using valuable assets, including shelf space, doesn’t make sense for items not selling.
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Reevaluate Your Business Operations
An essential part of a successful business is monitoring your business operations.
Are there services you could outsource to save money? You might, for example, pay an outside company to handle your payroll, and it’s more cost-effective than keeping a person on staff to do the same job.
For most businesses, payroll is a significant cost. Evaluate if the sales you gain warrant having a certain number of people on the clock. The more efficiency you have with your business operations, the better your cash flow will look.
Monitor Your Money and Where It’s Going
A successful business knows where all of its outflow of cash is going. You need to monitor where your money goes.
Some businesses take on debt or borrow to help maintain a healthy cash flow. You want to ensure the cost of taking out a loan is less than the benefits of borrowing it.
Adjust When You Pay Vendors
One way to build a healthier cash flow is by evaluating when you’re paying your vendors. Work to set up your payment schedule so it’s in conjunction with when you have income or money from invoices coming into the business.
If you’re facing a problematic negative cash flow time, you might be able to work with vendors to delay payment. Of course, this doesn’t help if it only adds late fees. Be sure to ask if you plan to pay a vendor late.
Reduce Spending
One of the most obvious ways to increase your cash flow is to reduce your business spending. This often sounds simple in theory but can be more challenging in practice.
Even making small changes in spending can make a difference over time. Analyze your spending and look for ways to trim that spending. It might come from being more mindful about electricity usage and how employees use supplies.
Revolving Cash Flow Statement
If you want to learn how to improve the cash flow in your business, then creating a revolving cash flow statement is critical. A revolving cash flow statement allows you to create a cash flow statement for many months and look to the future to prepare you for when cash might be tighter. You can forecast cash and adjust your business strategies accordingly.
Increase Your Business Cash Flow
Cash flow is integral to the success of any business. Without cash flow, you can pay your bills and find ways to grow your business.
If you want assistance addressing cash flow, business services or need tax services, we can help. Learn more about our Charlotte, NC, services so we can work together to help your business flourish.