Steady cash flow is the lifeblood of any small business. 
With it, you have flexibility to make important purchases, hire additional employees and acquire new assets. Without it, you may be in jeopardy of losing your best people and perhaps customers.
So here are 11 quick tips to help you improve your cash flow:
- Keep on top of your receivables – If your customers aren’t paying in a timely manner, it can make cash tight and consequently becomes more difficult to service your clients and be responsive to their needs. Reach out to those who are behind in their payments and ask if there is a problem causing their slow payment. If there is an issue, ask if there is any way you can help. This can go a long way towards keeping them as a client and improving the timeliness of their payments.
- Make sure you are billing clients in a timely manner – It’s one thing if your clients are slow to pay you because they have issues, it’s another thing entirely if they aren’t paying because your invoicing process is too slow! If your billings aren’t going out consistently and at regular intervals, you may need to redefine your billing policies, practices and procedures.
- Renegotiate your Terms with Vendors – If you have simple Net 30 terms with your vendors, ask if they are open to offering you a discount for full payment at 30 days, or if they would be amendable to an increase to 60 or 90 days. That additional time can allow you to earn extra interest on your money as well as provide you with increased flexibility.
- Look for additional, incremental sales – Suggestive selling is a great way to increase incremental revenue and improve cash flow. Make sure your current clients know about all of the products and/or services that you offer. You may be leaving money on the table if you aren’t thoroughly educating your clients about your expertise.
- Renegotiate Your Terms with Clients – Would your clients be open to paying sooner? You won’t know unless you ask. Some organizations are able to get “pay on use” terms from their customers or clients in exchange for faster delivery or service.
- Look for leaks – Look at monthly recurring expenses for things that you are not using or from which you do not derive any benefit. One of the most significant areas of expense is related to employee benefits. A regular review of benefits-related expenses can yield significant savings and help cash flow and your bottom line. You can also look for unnecessary line items in your expenses that can be reduced or eliminated. Small investments in time can yield meaningful results when you eliminate recurring expenses such as communications and insurance.
- Optimize Your Pricing – It’s important to remain competitive, but you may be leaving money on the table. Customers may be willing to pay a premium for value-added amenities such as guaranteed service levels. If you’re bending over backwards to meet your customers’ needs, they may be willing to pay a premium to keep that level of service and commitment. Periodic reviews of competitive pricing can help and there are software packages that can assist in ensuring your pricing maximizes profitability.
- Optimize Your Product/Service Mix – If you have particular offerings that aren’t profitable, you may be smart to eliminate them. However, in some cases you have to keep some of these offerings in order to be a “one-stop-shop” for your best clients. But if your customer doesn’t see value in them, you may be reducing your profitability and cash flow for no real benefit.
Having cash tied up in excess, low-turn inventory is also damaging to your cash flow. Similarly, for services-based businesses, having unutilized/under-utilized resources (be they people or equipment) can have a profoundly negative impact on cash flow and profitability. - Maintain the Right Cash Mix – Having too much cash on hand can cause you to lose out on returns you could get by investing that money . However, this must be balanced with the need to maintain liquidity and availability of funds for operational needs. Proper planning is key!
- Mind your Debt Service – When interest rates were low, taking out loans didn’t require lot of thought. Now that rates are beginning to creep up, care must be taken to keep debt service at manageable levels. In addition to a negative effect on cash flow, too much debt can limit flexibility. Having pre-established lines of credit can save you time and money and help you when cash flow is inconsistent.
- Optimize Your Tax Planning – Nothing can kill your cash flow and profitability as quickly as paying more in taxes than you should. Proper planning can prevent you from losing money in excessive taxes.
Do you need help with cash flow or tax planning? The Zinner team stands ready to help! Contact your Zinner & Co. accounting specialist to learn more.
