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  • Writer's pictureFair, Anderson Langerman

How to Improve Cash Flow For Small Businesses?

Updated: Jan 19, 2023

For your business to run smoothly, you need a consistent movement of real or virtual money. Cash inflows come from sales, accounts receivable and investment earnings. Outflows mainly consist of payments to employees, suppliers, accounts payable, and taxes. As your small business accountant will tell you, the cash flow statement is a crucial document for determining a company’s performance.

Effective Cash Flow Management Techniques

If the amount of cash flowing into your business is higher than the outflow, then you have a positive cash flow. To avoid a negative cash flow, your small business accountant will advise you to take the following steps:

1. Speed up Payments

If your organization requires a considerable amount of cash, ask for a deposit before delivering the product or service. You can also institute a milestone payment system to ensure you don't go for long periods of time without cash inflows.

Bill and send invoices as early as possible to reduce or avoid late payments. Consider offering discounts to customers who pay on or ahead of schedule. Stay in regular contact with customers to improve their chances of paying on time. A phone call is a better reminder than emails. 

2. Manage Your Inventory

Slow-moving inventory ties up a lot of cash that could improve cash flow. It also increases expenses in storage costs. If you have an effective inventory management system in place, you can stock more of what moves fast and less of what doesn’t. It’s better to sell dead stock at a discount than keep holding it. 

3. Lease Equipment

Leasing expensive equipment, supplies and real estate brings your business more cash flow positive compared to purchasing. As an added advantage, your lease payments are tax-deductible. A competent small business accountant will also advise you to sell or lease your idle equipment to increase cash inflow. 

4. Increase Your Profit Margins

The higher your net income, the more positive your operating cash flow becomes. You can achieve higher profit margins in various ways. They include increasing sales, reducing operating expenses, negotiating better deals with vendors, and eliminating waste.

Improving brand awareness makes your company stand out. In addition to increasing sales, it allows you to bump up prices. Consider upselling and cross-selling to existing customers to boost their average order value. These strategies ultimately result in positive cash flow.

5. Embrace Technology

You can implement most of the tips mentioned above through the effective use of tech solutions. The most apparent are inventory and cash flow management software. Giving your customers a variety of payment options encourages them to pay faster. They include ACH, deposit, electronic check services, and commercial cards.

Accounting software also helps by accurately recording sales, expenses, accounts payable, and accounts receivable. You can tell whether your cash flow is positive or negative through an automated cash flow analysis. Accounting software also assists with invoicing, payment reminders and providing alerts on cash reserves.

Do you require the services of a small business accountant? Fair, Anderson & Langerman has all the solutions you need for a cash-flow-positive business and healthy bottom line. Our experts cover a variety of industries, including real estate, construction, food and beverage, and manufacturing. Please contact us today for more details on our comprehensive services.

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