Cash flow refers to how money moves in and out of your business. Improper cash flow management can cause your business to fail, while proper management can help you maintain and scale your business. Here are nine ways to manage cash flow in your business.
1. Send Invoices Immediately
The sooner you send your invoices, the sooner you’ll get paid. Invoicing software can automate the process, making sending timely invoices easy while reducing payment turnaround times.
2. Reduce Your Inventory
Too much inventory means your cash is tied up in unsold assets. Instead, reduce your inventory orders of less-popular items to free up cash you can use elsewhere in your business.
3. Shorten Your Payroll Cycle
Paying your employees every two weeks means you’ll make smaller payments, ensuring you have more cash after each payment than if you’d made a more significant monthly distribution.
4. Spread Out Your Bill Payments
On paper, it makes sense to pay all of your bills at once to avoid late payments and missed deadlines. But spreading your accounts out can prevent you from depleting your monthly cash reserves, meaning you’ll have more cash on hand between bills.
5. 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.
Generally, it’s best to have three to six months’ worth of expenses in your cash reserve.
6. Use a High-Yield Savings Account
Open a high-yield business savings account to serve as your primary cash reservoir. Ensure that the savings account grants you continual access to funds for emergencies or unexpected expenses.
7. Reevaluate Your Business Expenses
Reducing your operating costs is, without question, one of the best ways to manage cash flow.
You should continuously strive to reduce your operating expenses. For example, repair your equipment rather than replace it and renegotiate your contracts with vendors and suppliers. Finding ways to save can prevent you from tying up cash in your day-to-day expenses.
8. Pursue Financing
For a short-term influx of cash, consider financing options. A small business loan, for instance, can provide the money you need for capital improvements, payroll, and more. But be careful — high-interest payments can reduce your cash flow as you repay the loan.
9. Outsource Your Business Finances
Outsourcing your financial processes is another one of successful business owners’ most relied-on ways to manage cash flow. For example, a professional accounting service can deliver a clear, transparent analysis of your financial health for a fraction of the cost of hiring your accountant or bookkeeper.
Take the Next Step
kept.pro provides cutting-edge bookkeeping and controller services that can help your business manage its finances accurately and with ease. Ready to get started? Contact kept.pro today for your accounting review and assessment.