checking the companies invoices
checking the companies invoices

6 tips to improve cash flow for small businesses

 

Cash flow management is an important part of running any business. For start-ups and small businesses especially, good cash flow management could mean the difference between success and failure. These cash flow tips for businesses will help you be better prepared for the unexpected twists and turns that come with running a small business and help you stay afloat through the leaner months.

 

 

 

The benefits of cash flow management

Managing your cash so that your business has enough to meet its needs is critical to business success, but it has other benefits too:

Peace of mind

Reassurance that your business is safe.

Paying staff on time

 

Common cashflow problems in small businesses

Small businesses regularly encounter the same problems when it comes to managing cash flow.  

Not having cash reserves

contactless payment with a customer

Not having cash reserves

It is advised that businesses have three to six months of cash reserves set aside to keep the business running should they encounter unexpected difficulties. Of course, for many start-ups who may have taken out loans or spent their life savings to get their business up and running, this is a lot of money to accumulate.

 

Growing too fast

checking the bills

Growing too fast

If a start-up is successful in the first months or years, growing quickly seems like the logical thing to do. However, this can result in too many upfront costs, from paying employees’ salaries to buying enough raw materials to produce goods, leading to cash flow problems.

 

Getting pricing wrong

checking the measurements

Getting pricing wrong

Calculating profit margins when you’re just starting out can be tricky, especially if you’re hoping to entice new customers with great deals. But setting low profit margins can lead to cash flow problems down the line as your business grows and more money is needed elsewhere.

 

Cash flow tips for small businesses

If you want to improve cash flow in your business, these tips will help you build up a cash flow reserve, so your business is better prepared for any bumps in the road ahead.

Build up a cash reserve from the start

review the accounts

Build up a cash reserve from the start

Building up a cash flow reserve for your business is important in ensuring success. If you’re starting a new business venture, it’s likely you have some savings set aside or have another means of financing the start-up, such as investment from others or a grant or loan. Set some of this money aside for cash flow or use it to cover your own finances. While the business generates income, this can act as cash flow reserve before you start paying yourself a salary.

Establish an invoicing process

checking the finances

Establish an invoicing process

Ensuring invoices are paid on time will make a huge difference to your business cash flow management. Late invoices create uncertainty and can affect your own supply chains if you’re unable to pay for goods. It’s important to set ground rules with your clients from the outset, so they know when you expect invoices to be paid, and the steps that will be taken if they fail to do so. Online invoicing software can help you to manage the invoicing process.

Make payments as late as possible

reviewing the payment schedule

Make payments as late as possible

Making payments later in the month keeps as much money in your business as possible and gives your outstanding invoices chance to arrive in your account before you release the funds, ensuring a healthy cash flow reserve. This is why most companies pay their employees on the last day of the month!

Set up automated payments for regular outgoing expenses

checking expenses on the go

Set up automated payments for regular outgoing expenses

Automating payments for expenses helps you keep track of your cash flow and means you know exactly when money will be leaving the account. Use digital banking apps or payment automation software to help you keep track of payments.

Keep your books up to date

reviewing the books

Keep your books up to date

Whether you hire an accountant to work in-house, outsource to an accountancy company, use accounting software or do it yourself, keeping your accounts up to date is of vital importance. Not only does it help you understand where money is being spent and which areas of the business are most profitable, but it ensures that submitting your accounts at the end of the tax year is much easier!

Liquidate assets

woman using zipcar for deliveries

Liquidate assets

Sometimes your company might be doing well financially but lack the upfront cash due to your money being tied up in assets. In these situations, it makes sense to consider which assets are entirely necessary, and which you would benefit from liquidating to generate additional cash flow. If you have a fleet of vehicles, free up cash without losing out on your transportation by switching to Zipcar for Business.

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