How can you find the right balance for optimized cash flow? Start with these eight tips.
8 tips for better cash flow:
- Maintain visibility
- Be prompt with payments and invoices
- Be on the lookout for changes
- Try renegotiating
- Reevaluate your invoicing practices
- Cut unnecessary costs
- Use accounting software
- Consider a line of credit
Cash flow management continues to be a sore spot for many business owners. And failing to monitor and optimize cash flow can lead to big problems, now and in the future. These considerations are especially important after the economic downturn over the last year, with business closures, layoffs, remote work, and other severe business impacts.
Cash flow describes the funds being transferred in and out of your business: the rhythmic movement of money. It measures all your income and expenses over a given period and tells you if you have any profit left over. Cash flow management is a crucial component of managing your business and ensuring it is stable and prosperous.
Fortunately, you can get on top of any issues with the right solutions. Here are eight quick tips for optimized cash flow:
1. Maintain visibility
The first step toward better cash flow is staying on top of it. You should always know everything coming in and out—all sources of income and all business expenses. This is an ongoing process that needs regular attention, so put a simple yet thorough process in place that works for you and your team, whether it’s using an online platform or just a spreadsheet. Create a budget and monitor for any issues you come across when sticking to it.
2. Be prompt with payments and invoices
It’s easy to become annoyed with clients when they’re dragging their feet on payment. Try tightening your payment terms, but also remember that you should send your invoices as soon as services are complete. Encourage promptness in the payment process by being prompt yourself. Don’t wait to pay your own bills, either, as this can create a dangerous cycle, and you can quickly get behind.
3. Be on the lookout for potential changes
Once you start tracking and monitoring cash flow regularly, you’ll get a sense of when something might change, even if numbers aren’t your strong suit. There will always be ups and downs we can’t predict, but still many we can. So pay attention to the market and do your research. For example, start tracking which seasons are great for your business and which may cause a cash flow crunch and plan accordingly.
4. Try renegotiating
Take a look at current contracts and see if you can renegotiate with your vendors. Are you getting the best deal? Are you paying a fair price for your business rental? Are there other service providers you could work with instead that are more affordable? Try leveraging whatever you can to get a better deal or rate. This may include negotiating better terms with long-term vendors based on an excellent payment history and consistent business.
5. Reevaluate invoicing practices
The reason payments aren’t coming through fast enough could be because of your workflows, not necessarily your payment terms. How long does it take for you to generate and send an invoice? Try using digital tools that make it much faster to perform these tasks. Make sure you don’t have a pile of invoices somewhere waiting to be sent or processed.
6. Cut unnecessary costs
Always be on the lookout for places to cut back, especially if you see worrisome patterns in your cash flow. It may be time to let go of a space you’re paying rent for but not using, for example, especially if you work primarily remotely now. Many subscriptions are started and rarely, if ever, used. Go through all of the expenses to see if there’s anything that’s just not worth the payment anymore, like software or professional services. Cut back wherever possible.
7. Use accounting software
Staying on top of cash flow requires regular monitoring, organization, and some math. To make this process easier, try using an accounting software platform that tracks business transactions, generates reports, sends invoices at the press of a button, and helps make predictions for the future. The software can save you time, ensure accuracy, and increase visibility regularly. When a process is simpler, you’re more likely to do it.
8. Consider a line of credit
Finally, consider getting a line of business credit. Even if you’re not doing poorly right now, credit can protect you in the future if you have a cash flow problem. Many small businesses decide to do this long before they need it, just so they have peace of mind moving forward.
Work with a business advisor
When you find you’re having a cash flow issue, another option is working with a business advisor who can help identify problems and put better practices in place. Talking to a professional is a good idea, even if you haven’t hit a roadblock yet. Asking for guidance now helps ensure you’ll stay on the path to long-term success.
The team at Provident CPA and Business Advisors helps businesses grow profitably through a better business strategy. We also specialize in minimizing taxes for business owners and walking our clients through the best tax planning strategies.
Contact the team at Provident CPA and Business Advisors to learn more.