Cash Flow Tips for Small Businesses

Cash flow or the lack of it can make or break a small business, especially during economically challenging times when credit for small businesses has virtually dried up. Cash flow can trickle in with customers holding on to their money as long as possible and suppliers expecting payment faster than ever. While there’s no magic trick to make things better, these cash flow tips for small businesses may help.

Subtle Cash Flow Changes Make a Big Difference

Cash flow tips for small businesses are often small steps that make a big difference in the long term. The converse is also true. Bloomberg Businessweek reported payments made in the three years prior to 2010 averaged about 23 days to get to accounts receivable for private companies, but in 2010 that increased to 27 days. While four days may seem insignificant, when it comes to cash flow it can make a big difference—a difference that is compounded month after month. With this in mind, approach the following tips for small business with a mindset that small changes can make a difference long term.

Cash Flow Tips for Small Businesses

Cash flow can often be increased by cutting back in other areas such as

Cut Excess

Cutting excess may seem like a no brainer, but understanding what constitutes excess can sometimes be a challenge.

Inventory: Have control systems in place to be sure you maintain only the inventory you need.
Stock: Cut back on slow-moving stock to optimize the space you have.

Another way that may help to cut excess and still expand your gbusiness is to move to selling your product via a website. This can cut overhead expenses while still expanding your business.

Change Policies

Take a look at current policies and be willing to make changes in those that affect cash flow:

Payment terms: If you have a record of paying your bills on time with suppliers, talk with them to renegotiate payment terms to your advantage.
Paying on time: Pay your bills when they are due. As a small business, it is easy to sit down once a week or twice a month and pay bills. Paying bills before they are due can affect cash flow. Instead, paying only when bills are due, keeps the money in the bank and your business checking account for as long as possible.
Bonuses and commission: If you pay your sales staff bonuses or commissions, only pay once the money from the sale is in the bank.
Lease equipment: Another way to save money is to look into leasing equipment rather than buying it. This option allows you to update equipment without a large cash outflow. For instance, leasing a copy machine can help reduce cash outlay not only in saving money that would have been spent to purchase the machine, but it allows for upgrades and maintenance at a lower cost and the flexibility to change to another machine as needs dictate.

Increase Immediate Cash Flow

Steps to increase immediate cash flow are viable, but are often only a short-term solution.

Pay by credit card: The use of your business credit card can help free up some cash, but this practice should be approached with caution as an occasional solution to free up immediate cash flow and not a monthly practice that puts you further in debt.
Sell assets: Take a hard look at business assets you don’t use much or don’t need and sell them.
Rent our space: If you own the building, another option is to let out space to another business. This may be a small as one office, or the back end of your building depending on the details. Renting out space you don’t really need is an ideal way to increase cash flow.

Consider Professional Help

When it comes to cash flow problems, small business owners are often reluctant or afraid to make changes that can help, especially if they are a small business owner tied to the day-to-day operation of the business. While hiring a professional to help you see the big picture may seem like something you can’t afford in a critical economy, in reality, it may be the very help you need to see that it is possible to increase cash flow by decreasing inventory.