As a small business, having a healthy cash flow can mean the difference between surviving another year of business or being a statistic. Spoiler: 82% of small businesses fail because of poor cash flow.
Obviously, your goal is to continuously bring cash in, but keeping your business afloat (and eventually thriving) requires more than revenue. You have to be smart about how you handle every dollar going in and out of your accounts.
If you’re struggling to figure out how to better manage your funds and make good use of your money, you’re in luck. We’re breaking down how to optimize your cash flow so you can pay your bills today and grow your profits tomorrow.
What is cash flow?
Cash flow is the net amount of cash going in and out of your business within a certain time period. It can come from different avenues, like operating, financing, or investing activities, and is a strong indicator of your financial stability.
You’ll be able to see where you land when you look at your cash flow statements. If the amount you take in is more than the amount you put out, you have a positive cash flow. If you put out more than you bring in, it’s negative.
Especially if you’re just starting your business, it’s not uncommon to be in the red—but that doesn’t mean you can’t do everything in your power to improve your cash flow and get on more stable financial ground.
Ten ways to improve your cash flow
The last thing you want as a small business owner is to find out too late that you’re running out of cash. Luckily, there are plenty of ways you can better manage your cash flow with a more strategic eye and forecast your future to avoid gaps and prevent disaster.
1. Cut spending
Well, duh, right? Sure, it seems obvious to just cut spending so you can reduce your cash output. The hard part can be figuring out where to make changes that don’t negatively impact employee or customer satisfaction.
Start by looking at the systems you use each day. Are there tech solutions that your team barely, if ever, actually uses or ones that simply don’t work for your needs? Get rid of them. Are you spending more on utilities because you keep your office space lit 24/7? Turn everything off at the end of the day. A few small changes can go a long way in optimizing your spend management.
2. Embrace real-time financial visibility
It’s time to move away from only relying on month-end reporting – that’s so 2023 vibes! Waiting 30 days to see overspending is too late to take corrective action.
If you’re going to improve your cash flow management, you need to first improve how you track your finances, and real-time financial tracking is your solution. By implementing tools and systems that provide immediate visibility into spending patterns and cash positions, you can:
- Make proactive decisions rather than reactive ones
- Immediately course correct
- Improve cash flow forecasting for future stability
- Prevent cash flow surprises before they become problems.
3. Leverage Technology Strategically
We know. We know. AI is the hot new thing.
But rather than adopting every new technology solution available or that comes along, you should carefully evaluate the ROI of each tool. SMBs don't usually have the resources for endless experimentation – they need solutions that deliver clear, measurable value. This means analyzing how each technology investment will either save time (which can be redirected to growth activities) or directly impact the bottom line.
The key is to start with the problem you're trying to solve, then find the technology that addresses it, rather than the other way around.
4. Build a Best-in-Class Back Office Through Integrations
In the same vein as point number 3, the pressure can be on sometimes to move to an expensive, all-in-one ERP system. But, you can often create a more efficient and cost-effective back office by integrating best-in-class tools for specific functions.
Hint: The best ERP might actually be a custom stack of specialized tools that work together seamlessly. This approach allows businesses to select the best tool for each specific need (like BILL for payments) rather than compromising with mediocre solutions in an all-in-one package.
This not only optimizes capital allocation and cash flow by paying only for what you need but also creates a more efficient operation tailored to your specific business requirements.
5. Check your inventory habits
Poor inventory management hits a lot of SMBs hard. Besides being a tedious task, it can be hard to figure out how much you need of each item, causing you to overbuy without realizing it. That’s especially true for start-ups.
Get the “I don’t want to” sighs out of the way now. All good? Great.
Each month, take a day to figure out what goods you’re spending money on and what isn’t moving as fast as other items. Have yet-to-be-used stock piling up in the back room? Lay off buying that item until the inventory goes down. Finding items that aren’t being used at all? Sell them.
6. Pay debts right away
Especially if you’re tight on cash, you might want to wait to pay invoices or debts at the last minute—or not at all—until you have more funds. Bad call.
Once your accounts payable team receives an invoice, pay it. By paying your debts right away, you avoid late fees and costly disputes should you accidentally (or purposely) let the due date pass. In the end, that preserves your cash liquidity much more than putting off paying.
7. Send out invoices immediately
In a similar vein, don’t wait to send invoices to your contractors or suppliers. Send them as soon as you deliver a product or service. Make the invoices easy to read—in terms of the amount due and the due date.
You may also want to establish late payment fees to encourage on-time payments and have a safety net for late fulfillment. On the opposite end, you can also give incentive plans or discounts to those who pay within a small window of time so you have that inflow of cash sooner.
8. Work on supplier relationships
Supplier relationships have a big impact on your bottom line, so it’s worth the effort to build good rapport with your vendors. This includes partnering with your accounts payable team to ensure all supplier invoices are paid on time.
Happy suppliers are more likely to offer competitive pricing and discounts on their products or services, giving you a chance to reduce spending. They’re also more likely to extend payment cycles, giving you more runway to fulfill invoices.
9. Perform customer credit checks
Cash is king when it comes to receiving payments for services—but not everyone has that cash readily on hand.
If a customer won’t pay in cash, consider performing a credit check on their business. Knowing their credit rating can help you avoid late or missed payments and the stress headache that comes with them. In some cases, you may find it’s not worth the risk of nonpayment and say, “Thanks, but no thanks.”
10. Set budget limits
“Just expense it.” Those are every employee’s favorite words. But they don’t fly when you’re a small business—unless you want to end up with way more debt and cash output than you can handle.
Work with your finance team to determine set, pre-approved budgets for each team. By giving everyone strict caps on what each department can charge, you’ll avoid overspending and improve cash flow overall. (We promise that your sales team will find another way to win clients besides expensing $2,000 dinners.)
11. Keep all your finance data in one place
Cash flow is only one part of the larger puzzle that is strong spend management. If you’re going to make more informed decisions about where your money comes from and goes, you need all your financial operations activity to be in one place.
You won’t be able to have that big-picture view if your financial data is scattered throughout a dozen spreadsheets and three different accounting systems.
See how Hiline integrates directly with Divvy to give you a dashboard and insights that show all your finances in one place.
Cash in on your cash flow
Maintaining strong funds for your business comes down to strong cash flow management.
At Hiline, we specialize in helping small businesses by combining cutting-edge technology and great processes, all delivered with a human touch. You don’t just get another accounting system or firm—you get a real partner and a complete financial operating system.
We let you reimagine your financial ecosystem, giving you the tools you need to take charge of your expenses, turn your AP system into a strategic asset, and get your cash flow on solid ground.
Get in touch with our team to get a better handle on your company’s finances.
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