8 Ways to Improve Your Business Cash Flow

Cash flow refers to how actual cash moves in and out of a business's key accounts. It is distinct from profit. When your internal accounting is done on an accrual basis, there can be big differences between cash and profit. In all businesses that sell a service or product, it is important to be profitable over the long term – in fact, long-term profitability is one driver of long-term cash availability. However, you can’t pay your employees or vendors in “profit”; those payments require cash.

Improper cash flow management can cause a business to miss payroll or leave it unable to purchase critical inventory. Proper management allows a business to sustain itself and ideally maximize its available cash for growth.

Here are eight ways to improve cash flow:

1. Maintain A 13-Week Cash Forecast

The 13-week cash forecast is a simple tool with a time horizon that is short enough to ensure accuracy, but long enough that it affords business owners sufficient time to act on any issues it illuminates. If your business is cash flush and has liquidity ratios that are greater than industry norms (e.g. current ratio), then this may not be an appropriate use of time relative to other financial tools that might, say, inform investment decisions. In any other scenario it’s an essential tool analogous to an unobstructed windshield on a truck you’re driving; it will prevent you from unintentionally doing damage.

2. Divest Money-Losing Customers And/Or Products

Your financial reporting processes should be telling you which customers and/or products are not profitable. If they’re not, there’s a good chance you’re leaking money somewhere. Once you’ve identified that you have an issue, look at repricing or divesting those services, customers, or products. Your accounting systems, processes, and practices should support this today. If they don’t, we can help – as we did for this business.

3. Automate, Delegate Or Outsource Invoicing & Collection

While key to receiving payment quickly, sending invoicing out immediately can be challenging with a full schedule. Invoicing software can automate the process, making sending timely invoices easy while reducing payment turnaround times. Alternatively, delegate the task to a team member or fractional accounting team provider who can make it a consistent top priority.

4. Ensure You’re Not Leaking Cash To Fraud

From account reconciliations to separation of duties, make sure your accounting team is closing the books in a timely and reliable manner every month. Have processes in place to discourage and surface theft or fraud.

5. Establish A Line Of Credit Before You Need One

In a cash flow crunch, last-minute financing options can be stressful, costly, and limit growth down the line. Before a cash crunch happens, invest the time to secure a line of credit, allowing you to access capital when needed at a more competitive interest rate. Before you initiate a conversation with a bank, asset-based lender, or other alternative lender, make sure you have your financial statements in order and access to the right fractional financial talent to guide you through the process.

6. Maintain A Cash Reserve

Unexpected expenses can reduce your cash on hand. Develop an emergency fund that allows you to respond quickly to new needs and opportunities ,and prevents you from taking from your operating budget or savings account. It can be hard to leave money “in the business” as an owner. Consider removing ambiguity about how much you should leave in by having a qualified fractional accounting team conduct industry benchmarking of your liquidity ratios. This knowledge will inform how much cash you should maintain in reserve.

7. Systematically Evaluate Business Expenses

Reducing operating costs is one of the more straightforward ways to improve cash flow – but it’s not always easy.

What is and is not critical for a business’s health and growth is usually obvious to managers if they are taking the time to review expenses. A scheduled periodic (e.g. quarterly) review of your financial statements will give you consistent visibility into how the business is spending money and where it may be able to cut back. An experienced fractional accounting team will be able to provide flux analysis and trend analysis of your financial statements to surface potential areas of savings.

8. Leverage A Qualified Fractional Accounting Team

Outsourcing your financial processes allows for greater focus on high-level financial management because the foundation is taken care of. A professional accounting service can deliver a clear, transparent analysis of your financial health and give you confidence that you are optimizing each accounting system for maximum cash flow.

Learn more about how to optimize your business by scheduling a free call with one of the experts at kept.pro today. Click here to get started.