Seven Effective Strategies for Improving Cash Flow

Small, medium, and enterprise-level businesses often struggle with cash flow management, but these steps can help you gain financial breathing space.

published May 18, 2024

Since 82% of business failures are caused by poor cash flow management, your business risks filing bankruptcy if you don’t have your ducks in a row. If you're in doubt, the fastest way to know whether you’re experiencing poor asset management is if your finances show that more money leaves your business than what comes in. What you want is the opposite: positive cash flow. Having poor cash flow comes with numerous dire consequences. This article is dedicated to showing you seven proven cash flow management strategies you can use to turn your company's fortunes around.

What Are Ways to Improve Cash Flow?

We like to hit the nail on the head, so let’s get into some of our trusted cash flow management strategies that you can adapt to suit your business needs.

1. Identify and Eliminate Unnecessary Expenses

Like a thief in the night, business expenses can creep up on you when you least expect them: a new office building, unsold inventory, some new furniture, and so on.

At first glance, these can look like common, regular, affordable expenses. They may even cost small amounts individually, but when you put them together, you may find that you’re paying more than an arm and a leg, especially for things your business can survive without.

Now, whether your business is in crisis already or not, it’s important to trim these unnecessary expenses before they create a cash flow management problem for you. At this point, focus on improving your assets and reducing liabilities, even if your business does not seem to be suffering.

You may consider selling unused vehicles and other “assets” that nobody touches more than, say, twice a year. Get rid of them and generate short-term cash flows, which can come in handy anytime. This proactive approach will help you plug cash leaks at their source and maintain a healthier cash flow.

2. Negotiate Better Terms With Suppliers and Vendors

Another way to boost your cash flow is through constant communication, negotiations, and renegotiations with your suppliers and vendors. Through these, you can explore other payment avenues at better terms, eventually translating to cost savings and helping you with managing cash flow.

While negotiating with your suppliers, what you’re looking for is better and more favorable terms. These can be as simple as asking for bulk rates for your purchases. Then, compare these with other suppliers' invoices to check whether you’re getting the best possible deal.

Like every other business transaction, transparency is key here. So, don’t feel shy about letting them know what you expect from the deal. You may also consider asking for discounts in exchange for making early payments.

This arrangement is easily a win-win for both parties—you benefit from cost savings, while your suppliers enjoy the reliability of early payments. This tactic will not only improve your cash flow but also boost your relationship with your most valuable suppliers.

3. Streamline Operational Processes to Become More Efficient and Save Time

Streamlining operational processes can enhance your business efficiency and save you valuable time. Aside from this, it can also guarantee that your resources are well used with no waste. Frequent wastage is one of the factors affecting small business cash flow management, and that is not a problem you want to have.

So, first, you must run a comprehensive audit of your current operational processes. Keep an eye out for bottlenecks, redundancies, and other areas where your resources are not well utilized.

Then, you will have to embrace technology, especially for repetitive tasks and manual processes. What this can do for you is lower the chances of error and give your team more time to focus on other activities.

If your team is lacking, you may have to invest in training and skill development. This is because a well-trained workforce is good at their jobs, and with this type of efficiency from your team, you can improve your cash flow.

4. Analyze Spending Habits and Create a Budget to Stay Within Your Financial Limits

One of the most important ways to deal with cash flow management issues is to stay within your financial limits. But to build and get this discipline right, you must analyze your spending habits and work within a budget—every time!

Start by thoroughly inspecting your current business expenditures to identify what your (important) recurring costs are and what expenses are too much or just unnecessary. From this analysis, you can create a rough idea of what your spending patterns are.

Now that you’ve established where your money goes, categorize your expenses into essential and non-essential ones. You’re looking at rent, utilities, and other key operation costs as essential expenditures. Anything else that does not fit this category can go or at least be slimmed down.

You can create a realistic budget and allocate funds based on your expenditure assessment. Put a tracking system in place to monitor your spending regularly to ensure compliance with your budget. This way, you can spot any deviations on time and fix them.

Regardless, keep some funds aside for emergencies—a financial buffer to ensure you never experience cash flow problems, even if all your planning fails.

5. Look Into Creative Financing Options Such as Crowdfunding, Equity Investments, or Personal Loans

Keeping more money coming in is an obvious way to stay above cash flow management issues. Here, creative financing options like crowdfunding and loans come in. There are loads of online platforms where you can present your proposals to potential backers.

With a simple pitch highlighting the core aspects of your business and the benefits these financiers can expect, you’re likely to get funding to oil your business engine. Equity investments are another way to raise funds—attracting investors to buy a stake in your business.

These can be anyone from angel investors to venture capitalists or private individuals. If none of these work out, reach out to family and friends as a potential alternative. Of course, to avoid future issues, there will have to be clear timelines, repayment schedules, clearly outlined interest rates, etc.

Also, research government grants and subsidies that apply to businesses in your industry. With this option, you don’t have to pay back any money you receive, which can take a lot of burden off your shoulders as you try to keep your business afloat.

6. Leverage Digital Tools to Automate Tedious Tasks and Save Valuable Time

As the saying goes, “time is money,” and cutting the time spent carrying out repetitive tasks can save you cash. You can never go wrong with adopting digital tools into your day-to-day operations.

So, for things like data entry, email responses, or generating routine reports, there’s no reason why anyone should manually do these things in 2024. You can leverage many apps, like Microsoft Power Automate, Zapier, and Integromat, because they have pre-built integrations and feature user-friendly interfaces, making them easy to use.

But of course, the options are endless; simply pick what matches your requirements and run with it. However, remember that simplicity is key, and if your chosen system is too complex, you may have to spend more money training your team. We’re trying to save money here, not spend more of it.

7. Lease Instead of Buying

For our final point, we want to focus on asset management. Even if your business is expanding fast, it’s not prudent to buy tons of property in short order. Buying as opposed to renting may seem like the most cost-effective option in the long run, but you need your business to survive up to that point in the first place. Leasing gives you immediate benefits, especially as it helps you to manage money by avoiding huge upfront costs.

Need Experts to Help You Manage Your Cash Flow?

Healthy cash flow is the result of efficient business operations. While applying the steps above will help greatly with your cash flow management, you want to ensure you have implementation covered and that the strategies you pick fit your business.

That’s why asking experts for guidance will never go out of fashion. At Foreword Companies, we help businesses take necessary steps to advance in areas of asset management and more. Contact us now to learn more about how we can make your business better.

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