Five Business Money Management Tips to Improve Cash Flow

Business Managers having a work discussion

Outline: Cash Flow | Business Money Management Tips | Unnecessary Spending | Your Accounts | Incentivize Payments | Unexpected Cash Needs | Save Money | Final Thoughts

Cash flow forms the lifeblood of any business. That is why most experts stress on efficient cash flow management when sharing their business money management tips. 

A steady, positive cash flow can mean:

  • The ability to fund the necessary business operations, 
  • More growth opportunities, enhanced profit margins
  • Greater chance for business expansion. 

Therefore, it is safe to say that a business’s cash flow is a reliable indicator of its financial health.

However, maintaining an ongoing positive cash flow is one of the biggest challenges for most small businesses, according to a global study by Intuit Inc., a technology platform that offers financial solutions for businesses. 

“The top reason for failure (for most small businesses) is the cash flow crunch and lack of flexible options,” reveals Alex Chriss, General Manager, Small Business and Self-Employed at Intuit.

What Is Cash Flow and Why Is It Important?

In simple terms, cash flow refers to the money moving in and out of your business. A positive cash flow is crucial for a business as it signifies that its revenues are higher than its expenditures. 

Improving your cash flow offers a chance to grow your business:

  • By expanding operations 
  • Hiring more employees
  • Investing in new goods and services

On the other hand, negative cash flow can rob a business of its flexibility and can prove to be debilitating for business growth and the economy. 

Business money illustrated using coins and the word "business"

Five Business Money Management Tips to Improve Cash Flow

Cash flow is a vital aspect for most businesses – there are no two ways about it. Wondering how to increase cash flow in a business? 

Here are some helpful business money management tips on how to boost cash flow:

1. Reduce Unnecessary Spending

One of the simplest ways to improve your business cash flow is to carefully analyze your business expenditures and cut back on unnecessary ones. Business expenses such as unsold inventory, unused subscriptions, and additional office supplies might not seem like a substantial amount individually. However, it can threaten your cash flow when grouped.

Start by devising strategic cuts to plug cash drains right at the source. For example, managing your inventory acquisition just right so that there is no unsold inventory piled up in your warehouse. Or, monitoring employee phone plans and insurance plans to ensure that no additional costs are being levied. And also, keeping track of electricity bills is one of the ways to prevent unnecessary cash outflow.

2. Improve Your Accounts Receivables and Better Manage Your Accounts Payables

As a business owner, you may mistakenly assume that a big sale is a job well done by the company. However, this doesn’t warrant a celebration just yet. Because you need to ensure that your clients make the payments on time for the orders. 

Make it a practice to send invoices promptly to your clients, and try including different prepayment terms with attractive incentives and reward offers that can persuade the clients to make payments at the earliest. 

Additionally, using appropriate software for invoice management and accounting can help you track invoices efficiently. Setting up electronic payment gateways is another effective method to improve your business cash flow.

Another preferred business money management tip by financial experts is to look into ways to restructure your accounts payables by developing positive relationships with vendors. Try revising or extending your repayment terms with vendors in exchange for your business to maximize your cash flow cycles. And thus, avoid being cash-strapped when the business needs it the most. 

At the same time, try to avail a discount for early repayments whenever the cash reserves are abundant to boost your profit margins.

Related: 12 Finance Reports To Help You Make Better Business Decisions

3.  Incentivize Faster Payments

Rewarding your customers for making payments in a timely fashion can improve your business cash flow considerably. You can also incentivize customers to prepay a portion of the order value upfront. 

These offers can be in the form of a percentage discount on the invoice value, say 3% if the payment is made within seven days, a gift voucher, an additional service, or bonus merchandise. 

These rewards can also improve the customer experience, encouraging them to stay loyal to your company and continue buying your products or services. 

Related: How to Pay Global Customers and Not Be Scammed by Online Money Transfers

4. Monitor, Anticipate, and Plan For Unexpected Cash Needs

Proactive cash flow prediction is one of the business money management tips that financial advisors swear by. This practice helps you accurately anticipate your business’s cash flow needs. 

Maintaining a weekly, quarterly, and yearly cash flow forecast document that records the income and outflow breakdowns is the easiest way to improve your business cash flow.

Predicting your cash flow patterns accurately enables you to be prepared for downtime instead of being caught off-guard during a negative cash flow swing. Consider opening a business line of credit beforehand for quick access to low-interest funds when the need arises.

5. Look For Innovative Ways To Save Money

One of the most frequent small businesses’ cash flow management tips is being creative when preventing unnecessary expenditures. Begin by creating a creed for your company, which will serve as a framework for making sound business decisions.

Consider leasing or renting equipment instead of purchasing it by paying the entire cost upfront. This would enable you to make smaller payments that wouldn’t deplete your cash reserves. 

Similarly, you can try outsourcing some business functions to freelancers and third-party providers instead of hiring full-time employees. This will allow you to fulfill the required tasks minus the need to pay a fixed salary or employee benefits.

Keep an eye out for areas with efficiency gaps and try implementing measures that can maximize savings, thus helping you improve your business cash flow.

Final Thoughts

Every business stands to benefit from a boost in its cash flow. These business cash flow strategies can help your business establish a much stronger footing in the long term.

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