Cash flow is the secret to running a successful business. Ensuring you have enough money coming in to pay your expenses and allowing you to grow will help keep your business running and set it up for success. Unfortunately, it isn’t always that easy, and there are plenty of reasons your business cash flow might be affected.
You may have brought on a big client who you need to invest money into, yet have to wait for payment at the end. You may want to buy up stock to sell, but not have the cash to pay for it upfront. Your overheads could be too high. Your sales may be lower than expected. No matter what position you find your business in, here are some top tips to help improve business cash flow.
What Is Business Cash Flow?
Firstly, let’s take a look at what exactly business cash flow refers to. Cash is what keeps a business running. It allows you to pay for employees, pay for overheads and any other bills that come in. You may make a lot of sales, but if you can’t pay your bills then your cash flow needs a check. Cash flow essentially refers to how much money is coming in and out of your business.
As the name suggests, it’s the flow of cash both ways. Coming into the business you can have sales, returns on investments, and more. Going out can be supplies, services, utilities, taxes, etc. You can measure how much is coming in versus how much is leaving your business to determine the cash flow. This is usually done over a couple of months.
Cash coming in – cash going out = net cash flow.
Positive cash flow: this is when you have more money coming in that going out.
Negative cash flow: this is when you have more money leaving the business than coming out.
Positive cash flow allows you to grow your business as you go. You have more money free to invest in opportunities and expand into new market. These both bring more cash flow into the business and lead the way to success. Of course, it isn’t always that easy. Here are some business cash flow tips.
Business Cash Flow Top Tips
After some great business cash flow tips? Here are our top ones:
- Manage invoices: staying on top of the paperwork is key. Make sure you get your invoices out on time and also follow them up if they aren’t paid within the specified timeframe. Creating a regular schedule for this can help.
- Avoid impulse purchases: when a business is getting off the ground, it can be all too easy to be tempted to spend big. Give it time and work out what the business really needs, rather than guessing. Reserve the money for essentials and pop everything else on a wishlist. If cash flow is in the positive, then you can revisit this list.
- Review pricing: start-up business can often price themselves too low in an attempt to attract those clients. It’s important to know your worth and price yourself accordingly to ensure the business is a sustainable one.
- Monitor stock levels: holding too much stock can cost you far more insurance and storage costs. It can take time to know how much stock you need, but it is something you should be monitoring from the start.
- Reduce overheads: if there is one thing that COVID-19 has taught us, it’s that it is possible for most businesses to operate from home. Consider which overhead costs are essential, and which ones you could forgo in order to better manage your cash flow.
- Create a plan: this is one of the most effective ways to manage your cash flow. Businesses can be seasonal, which means your cash flow can change throughout the year. Having a plan in place helps you manage these inevitable highs and lows better and to budget for them accordingly. This will help your business survive throughout the year and grow at the same time.
Getting More Cash
Whether you are in the start-up phase or have simply had a bad run of luck, there are times where bringing in the cash becomes impossible. If you are experiencing negative cash flow, one great solution is taking out a business loan. This can tide the business over until more cash becomes available, which can then go towards paying it back.
For example, if you have a big new client you want to impress, a loan can help you meet and exceed that client’s needs. You can then pay back this loan once the client pays you for your product and/or services. It’s a simple way to keep the cash flowing at all times. ALC Commercial provides simple and speedy business loans to help your business grow. Give us a call and speak to our expert team today.