Business Advice Small Business

How to Improve Cash Flow in Small Business: 4 Effective Tips

You’re practicing cash flow management when you track, evaluate, and maximize the difference between cash receipts and cash outlays. Cash flow is the net amount of cash and cash equivalents coming and going out of a business. Money spent and money received reflect inflows and outflows, respectively. 

In a business, proper cash flow management is essential to give you a clear picture of your expenditure and profit. SME owners need to understand how to manage their business’s cash flow for long-term financial success. 

Debt financing can be a great alternative if you have difficulty meeting cash flow needs. You can use this method as a tool to help scale and grow your businesses, even at struggling stages.

Every business goes through some cash flow issues. However, this doesn’t mean the end of your venture. There are different ways to ensure that you maintain positive cash flow for your business and improve it in the long run. Here are some significant reasons and tips on how to improve cash flow management.

Why is Cash Flow Management Important to a Small Business?

cashflow word on calculator and pen on documents

As a small business, looking out for your cash flow is in your best interest. A positive cash flow indicates that more money is entering your business than outgoing. If you don’t carefully manage your cash flow, you can make poor choices that can endanger your company.

Poor small business cash flow management can lead to the following:

  • Failure to pay suppliers
  • Unpaid debt obligations
  • Inability to purchase new inventory
  • Unpaid wages
  • Contract losses

Keeping a steady cash flow isn’t always easy, but it’s necessary to ensure business stability. Proper cash flow management can do wonders for your business, especially if you’re trying to fill in liquidity gaps. One great way to fill the gaps in liquidity is by utilizing business loans.

While the word loan may seem daunting, it isn’t always negative. Loans are a great way to meet the short-term liquidity needs of your business. Short-term debt is your financial obligation within the year, and if you’re coming up short with your cash flow, applying for a loan may be your best option.

Short-term loans entail paying back the principal amount plus interest by a specified due date, often one year after receiving the financing.

A common concern for people applying for loans is the interest they have to pay apart from the borrowed money. While this may cause concern, especially if you only have a small business in a need state, a loan will still benefit you since the money you have on hand can help you pay for gaps in your cash flow and keep it moving. It’s advantageous for paying off rent, payrolls, overhead expenses such as utilities and operational costs, and for unexpected expenses that may disrupt regular business or during seasons when business is slow.

If you think getting a loan is the best option for your business, then ensure that your cash flow is steady and properly monitored. Your cash flow shows prospective lenders that you can recoup a loan and generate enough revenue to pay off any debt you may have in addition to the cost of a new loan. 

4 Ways to Improve Cash Flow Management

Cash flow management can be tricky if you’re clueless about it. Here are a few ways how to improve cash flow in a small business. You can implement these to help you improve money management and establish a steady cash flow. 

1. Analyze your cash flow patterns

laptop and phone with graph, calculator, money and coins

Negative and positive cash flow swings have a pattern, so don’t be surprised. By analyzing and figuring out this pattern, you can start anticipating the swings and prepare earlier. You can begin studying your cash flow pattern through the following examples:

  • Determine your income sources
  • Know your expenses
  • Create your cash flow statement
  • Study your cash flow statement

2. Consider loaning money before you need it

hands counting money with paper, calculator, notebook, pens on table

Maintaining accurate accounting records allows you to create a forecast for your company based on past performance. Being proactive with your cash flow will enable you to foresee the money you expect to have and aid in planning for historically difficult times or seasonal trends. It helps you realize whether you need to get a business loan for the upcoming trying times, even if they’re not imminent.

For instance, if you anticipate needing additional funds in the future, you could want to begin negotiating with lenders about a bridge loan to help open the door for future financing—similar to how you might manage your other responsibilities to avoid cash flow surprises if you can predict major expenses before payout.

3. Use unused funds

piggybank with coins and pennies, scattered on surface

Using unused funds can increase your cash flow and fund your small business. Your idle funds are those that aren’t producing any income.

If you have sizable amounts in accounts that don’t pay interest, you can find a better place for them. You can think about transferring them to an interest-bearing account with a potential annual percentage yield of 0.5% or 1%. Another choice is to use the funds for business expansion, debt repayment and interest-rate reduction, the purchase of new equipment, or the advance payment of some expenditures.

4. Send invoices right away

hand with pen writing on paper on clipboard

You’ll have a more challenging time collecting payment if you send out invoices too later. In fact, 87% of companies claim they frequently receive payment after the invoice due date. To avoid this, consider speeding up your billing procedure if you’re experiencing cash flow issues. Doing this ensures that your clients receive their invoices more quickly, resulting in speedier payments.

Maintain Business Cash Flow 

Cash flow is a vital part of any business, and knowing how to manage it properly is one of the key ways to ensure your business stays afloat. Consider your finances, where they come from, and how they enter your accounting system.

A positive cash flow is an ideal goal for businesses, and it’s something you can achieve by following the tips mentioned and being mindful of your business finances. With business loans and proper cash flow management, you never have to worry about achieving positive cash flow and wondering how you’ll keep your business running. 

Ultimately, if you are looking for companies that can assist you with achieving positive cash flow and better cashflow management check out JK Capital Finance. We are an online lending company that provides full-suite loaning services to help you boost business productivity and performance. Contact JK Capital through our website or our representatives on Facebook for more information.