How to Improve Cash Flow: What You Should Know

Every business owner needs a plan for cash flow management. Your cash flow is the amount of cash that goes in and out of your business, and it’s a crucial indicator of a company’s financial health.

In this detailed guide, we’ll show you how to improve cash flow and get you acquainted with our unique strategy for maximizing your long-term profits and keeping your business stable and healthy.

Why Is It Important to Improve Cash Flow?

Cash flow is the cornerstone of your business’s financial health. Keeping profits above expenses helps you cover daily operational costs, fulfill payroll obligations, and keep your entire business running as smoothly as possible. In addition, a healthy cash flow opens up doors for strategic planning and investment, giving you a protective cushion for an unpredictable market.

The Benefits of Improved Cash Flow

Before we look at how to improve cash flow in a business, let’s explore some key benefits of keeping your profits higher than your expenses when running a company:

  1. Enhanced Liquidity: Adequate cash flow helps your business meet its short-term liabilities and operational costs without too much strain and stress.
  2. Investment Opportunities: With a steady cash flow, you can invest in growth opportunities, R&D, new market expansions, and more.
  3. Risk Mitigation: A solid cash flow position cushions your business against unforeseen financial challenges.
  4. Supplier and Vendor Advantage: Regular and timely payments to suppliers — a key aspect of cash flow management — often lead to better negotiation terms and volume discounts, along with a solid reputation in your industry.
  5. Employee Morale and Retention: Keeping a steady cash flow means your employees get paid on time, making your business a rewarding place to work and keeping your best team members committed.
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How To Improve a Business’s Cash Flow: 10 Steps

Now that you know a bit more about cash flow management, read below for 10 ways to manage cash flow and increase your company’s financial health.

1. Plan For Future Cash Needs

Accurate forecasting of future cash requirements protects you from getting caught by surprise. Planning ahead involves understanding seasonal business cycles, preparing for capital expenditures, and setting aside reserves for unexpected expenses.

2. Get Paid ASAP

Waiting on late payments might make your cash flow dangerously low. Strategies like offering early payment incentives, employing efficient billing systems, and setting clear payment terms may end you up with more predictable and consistent payments.

3. Improve Your Accounts Receivable

As another form of doubling down on late payments, prioritize organizing your accounts receivable as much as possible. Implementing strict credit policies, creating easy-to-use invoices, and sending payment reminders can significantly improve cash flow.

4. Manage Your Accounts Payable Process

The key here is balancing supplier relationships and convenient timing for payments. If you can, find a way to pay contractors, suppliers, and others at a time of the month when your income is highest. In addition, take advantage of creditor payment terms and prioritize payments based on their financial impact whenever you can.

5. Consider Upping Prices

If your cash flow constantly falters, your products or services might need a price change. Conducting market research helps you understand the value your customers place on your products or services, and it can be an essential step towards choosing the perfect price point for what you sell. In some cases, you can also benefit from gradually increasing prices while adding value to maintain customer loyalty.

6. Put Idle Cash to Work

If you have cash sitting in your company savings account, put it to good use. Investing surplus cash in safe, liquid assets like money market funds or high-yield savings accounts can generate additional income. That extra savings might not seem like much at first but adds up over time.

7. Use a Sweep Account

Sweep accounts automatically transfer funds to interest-bearing accounts at the end of each business day, optimizing interest income on surplus cash. These accounts help you make sure all of your savings generate some level of interest.

8. Lease Equipment Instead of Buying It

Financing expensive equipment might seem necessary, but it puts a serious strain on your cash flow — and renting is often an option. Leasing can be a more cash flow-friendly alternative to purchasing equipment outright. When you rent, you free up cash for other uses and can even get tax benefits in some cases.

9. Opt for Affordable Financing Options

Financing options like certain lines of credit, factoring services, or some merchant cash advances can give your business necessary capital for tight cash flow periods while still remaining affordable. When considering financing, always stay away from predatory loans with ultra-high interest rates.

10. Control Access to Bank Accounts

Always lock down your finances and change your account information often. Strict control over bank accounts prevents unauthorized transactions and helps you know exactly who has access to company funds.

Why Look to TGG for Help With Improving Cash Flow

Our expertise in forecasting and financial planning can transform your business’s approach to managing money. We provide personalized service that goes beyond traditional accounting, including strategic advice and practical tools for cash flow optimization. We’ll give you what you need for optimal cash flow forecasting, as well as tried-and-true strategies for growth.

TGG Accounting

Cash Flow Forecaster & Management Company

How To Improve Cash Flow: Concluding Thoughts

Mastering cash flow management is one of the first steps toward running a successful business. It requires a blend of strategic planning, efficient operations, and sometimes, expert guidance. Through partnership with a company like TGG, you can achieve not just financial stability but also next-level growth. Reach out to us today to learn more about how we can help you optimize your cash flow strategy.