Managing cash flow is often one of the biggest challenges for any small business. As a small business owner, you are focused on running your company, and sometimes aspects such as how to improve your company’s cash flow can fall by the wayside.
Our LCW CPAs accounting professionals have compiled five tips to speed up your cash flow:
1. Stay on top of cash account balances
If you’re collecting receivables in more than one account, be sure to move money on a regular basis when your balances get high. It is good practice to transfer the funds into your main operating account when money is coming in faster than expenditures.
2. Invoice faster or more frequently
When running your small business, it is important to sync outflows and inflows of cash. Outflows are expenses including rent, payroll, and operating costs. Inflows are monies coming into the business.
Timing outflows and inflows will help manage cash flow and for you, the business owner, by replacing cash flow concerns with peace of mind. It can be stressful to make payroll weekly if you are only invoicing monthly as cash flow dips more than it rises. Consider invoicing more frequently or staggering invoice due dates to smooth out cash flow. At LCW CPAs we advise clients to review their invoice schedule to improve cash flow.
3. Collect faster
You may have clients that do not pay in a timely manner. This is a complicated situation, but one we take seriously at LCW CPAs. Most clients will pay regularly. But for those who do not, we recommend having a credit card on file or an ACH authorization so you’re in control of their payment if there is a repeated pattern with a client. Putting processes in place when an invoice is late means that you, the business owner, is prepared. The longer a bill is outstanding, the less likely it is to be paid.
4. Pay off debt
As cash flow improves, plan to pay down or pay off business loans and credit card balances. By improving cash flow, you can better manage loan payments and credit card payments and reduce the interest expenses incurred, ultimately improving profitability. At LCW CPAs, we recommend periodically reviewing your business loans and associated interest rates to determine if refinancing at a lower rate is an option.
5. Reduce spending
Reducing expenses incurred by your business often means being more strategic and observant. It is often the small things that make a big difference.
When looking at business expenses over the last 12 months, consider the following:
- What did I spend that was a great investment for my business? Did I make any financial mistakes?
- Where could I re-negotiate contracts to reduce expenses?
- Are there expenses that are now less important to the business than they used to be and could be eliminated?
- Are all employees helping the company be more profitable?
Improving cash flow is one of the most common challenges for any business owner. If you are stressed about cash flow, we hope these five tips assist you. Learn more about our accounting and cash flow management services. We are committed to being a champion and advocate for our business clients, and improving cash flow is just one way to help our clients be successful. Contact us.