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9 Ways to Increase Your Small Business Cash Flow

By November 14, 2022Business Advice
Small business cash flow financial sheets

On average, approximately 50% of small businesses fail within the first year and 70% fail within the first 10. Of these failing businesses, 82% of the time, the failure stems from small business cash flow issues. Even growing businesses may have cash flow issues, resulting in an inability to pay staff, pay overhead, and keep inventory stocked. When these things are not done, your small business will fail.

However, you don’t have to panic. If your business is located in or near Cincinnati and you find yourself overwhelmed by your business finances, contact the professional accountants at Orcutt & Co. We specialize in managing all aspects of small business cash flow, including payroll, daily accounting/bookkeeping tasks, and tax prep. We are also a small business, so we understand your needs. The best part is, we will grow with you.

9 Tips to Increase Cash Flow

You may believe that increasing your small business cash flow is complicated. However, the truth is that simple shifts in your operations can have a significant impact on your cash flow now and in the future. Below, we’ll explain 9 things you can do to increase your cash flow.

Collect Receivables in a Timely Manner

Ideally, your customers will pay in cash at the time of service. Unfortunately, this isn’t always the case. Sometimes, getting paid can take time which causes an interruption in cash flow. However, you don’t have to sit back and wait for customers to pay. You can take steps to encourage them to pay early and on time by offering discounts for those who pay early and penalizing those who pay late. If you do decide to offer discounts to those who pay early, evaluate your finances to be sure that you can afford to. You don’t want the discount to impact your profit margin.

Send Invoices Quickly

As a small business owner, you have many jobs to do. At one point, you’re working directly with your customers, selling your product/service. At another time, you’re screening employees and sending out invoices to customers. You may find that it’s challenging to manage everything at one time. Unfortunately, this often means that invoicing falls to the wayside, which impacts cash flow. It is important to note that the longer it takes you to send an invoice, the longer it will take for your customer to pay. The best way to avoid late payments is by sending the invoice as soon as possible.

Increase Prices

We all know that inflation is higher than it’s been in more than 30 years and businesses are having to pay more in operating costs. This means that cash flow is decreased, but as a small business, you don’t have to shoulder this burden alone. You can protect your profit margins by increasing prices. Most consumers seem to be willing to absorb a portion of these increases. When you are honest about why you’re increasing your prices, how much they are increasing, and remind your customers why they need your product, they are more likely to remain loyal.

Simplify Inventory Management

Inventory management is critical for preserving cash flow. When you don’t properly manage your inventory, you may order too much or too little. One of the best ways to simplify inventory management is by integrating your inventory control system with your point-of-sale system. Many times, this will offer you the ability to set an alert for when inventory gets low and, in some cases, you can set it up to automatically re-order for you.

Consider Other Suppliers

If we’ve learned anything from the supply chain chaos associated with the pandemic, it’s that you need to have more than one supplier. This will improve your chances of being able to get the inventory you need and may also offer you some savings. The only way to find out if other vendors have better prices is by shopping around. Take the time to become familiar with all of the major suppliers in your industry and get a quote from each of them- it may significantly improve your small business cash flow.

 Consolidate Debt

Managing your small business cash flow can be challenging, particularly when you have bills that must be paid every month. This is especially true when you have high-interest credit card debt. The best way to improve your cash flow is to consolidate debt so that you have one bill with a lower interest rate. There are many lenders that offer term loans that can be used for this purpose.

Manage Accounts Payable

There are only a few things that impact cash flow more than not staying on top of your accounts payable and receivable. If you don’t know what you have coming in versus what you have going out, it’s impossible to manage your small business cash flow. If you track invoices, you can be sure that you don’t miss a payment. In addition, tracking your invoices can help you negotiate better terms with your vendors.

Utilize Invoice Factoring

Invoice factoring is a form of financing that allows you to sell your receivables to a third party. The lender will advance you a portion of the invoice so that you don’t have to wait to receive payment from your customers. It is important to note that the funding decision will depend on the creditworthiness of your customers. The higher their credit score, the lower your rate will be.

Understand Cash Flow Statements

As a small business owner, it is important that you understand your small business cash flow statements. This means that you need to pay attention to cash flow entries, including:

  • Opening balance
  • Customer receipts
  • Supplier payments
  • Operational income
  • Taxes
  • Interest earned
  • Salaries/wages

When you are aware of what is coming in and what is going out, it will be easier to determine the best ways to decrease expenses and improve cash flow.

Let Us Help You with Cash Flow Problems

There are many benefits related to improving your small business cash flow. It will help you keep your business running, even during difficult times. By keeping these 9 things in mind, you will be able to strengthen your cash flow.

If your business is located in or near Cincinnati, contact the professionals at Orcutt & Co to help you improve your cash flow. We are a small business, so we understand your unique situation. The best part is, when you hire us, we grow with you.