Cash flow – the funds that flow in and out of your business are a key factor in the success of your business. When your company has a positive cash flow, more money comes into the business than goes out, which increases the overall liquidity.
Why cash flow matters
It is vital to remember that sometimes, even if your business is very profitable, your cash flow may be low, which can cause challenges for your business. You need money to pay for costs like operating costs, inventory, utilities, and salaries.
Keeping an eye on your cash flow and being aware of money coming into and going out of the business allows you to:
Reasons why cash flow may be low
Several factors may contribute to a negative cash flow. Some of these reasons include:
How to improve cash flow
While there are a few things that cause your cash flow to be negative, there are some things you can do to improve and maintain it.
Encourage clients to pay invoices on times
Customers paying their invoices on time is out of your control but being paid significantly contributes to your cash flow and the business’s success.
Try the following to encourage clients to pay on time:
Take out a loan
If it’s challenging to keep up with the costs of running your business, you may want to take out a loan. Before taking out a loan, you must be sure that you will be able to use the money from the loan to increase your revenue and profit so that you can pay it back.
Since if you can’t generate more income, you will likely plunge yourself into further debt, which won’t help your cash flow situation.
Also, consider how much money you need to borrow and how much time you will need to repay it. Once you’ve done your homework, you can apply for a loan online or at the bank or lender’s premises.
As a small business, you may not qualify for a traditional loan from a bank as banks typically require small businesses to be in operation and financially stable for at least a year before they provide them with funding.
Still, small businesses have other options like applying to government-funded programs, non-profits that help small businesses or community-based banks.
Encourage quick sales and customers to buy more
When your cash flow is low and you want to stimulate sales, think of ways to encourage customers to buy more. This doesn’t have to cost you a lot of money.
An excellent way to get money into the business is to offer a popular product at a discounted rate, but the catch is customers have to pay immediately. You may have to take a cut in your margin, but it will allow money to flow into the business.
To increase how much each customer spends, consider bundle deals. This means packaging a few similar items together and selling them for a set price instead of selling each item individually.
Reduce unnecessary expenses
As careful as you may be with your spending, there are still unnecessary costs that small business owners aren’t aware of or assume that because they are small, cutting them won’t make a difference, but small expenses add up.
Look at your expenses and where every penny goes. If you rent an office, look at how much space you utilize and consider if you can work comfortably in a smaller area. Have you purchased equipment to make your products?
It may be cheaper to rent it as this won’t tie up so much money, and as the business grows and your demand increases, you can consider purchasing machinery.
Evaluate your staff. Is it necessary to have a full-time graphic designer, or will it be more financially viable to hire a freelancer once or twice a month, depending on the business needs?
Small cost savings can include switching the ink in your printer to black and only using colour when necessary, going paperless as far as possible to save on paper, and holding meetings virtually to save gas if you need to meet with suppliers or clients.
A positive cash flow is an essential factor in the success and growth of a business. A business’s cash flow can be negatively impacted when clients don’t pay their invoices on time, the company is poorly managed, makes a low profit, prices products or services incorrectly, or when holding too much stock.
To increase the businesses’ cash flow, consider encouraging clients to pay on time, take out a loan, get customers to spend more, and reduce costs.