Cash flow is important for a small business since it depicts the payments made and received by a business. Cash flow implies the company’s ability to create value and generate profits. In this blog, we shall discuss cash flow in depth and how a small business can improve it.

Small business owners need to manage their cash flow. Cash flow management is a critical component of small business success. Any company’s cash flow is its lifeblood, and it’s essential to have a plan in place for the future.

Business owners should avoid negative cash flow otherwise they may have to take additional debts or loans to run their business smoothly. 

Even prosperous, growing businesses might run into cash flow issues if their finance, operations, and investing activities aren’t well-managed.

When an individual has cash flow problems, it will lead to deeper issues like the business going bankrupt or not being able to show its creditworthiness in the market.

Here are seven basic cash flow tactics to help one get the most out of their money and improve their cash flow. 

What is Cash Flow?

A cash flow is the net worth of cash transferred out of and into the business. Vaguely, cash flow is incoming and outgoing of cash in the business. It represents the amount of liquid cash available for a business to fund its everyday expenses.

Cash comes in the business through the clients and customers who buy the products or avail services. It is called accounts receivable. Whereas a business spends on expenses, like utility bills, salaries and wages, monthly business loan payment, etc. It is called accounts payable.

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The balance with which a business starts operating for a day/month/year is called opening balance. And the balance with which it ends the day/month/year is called closing balance.

If the closing balance is more than the opening balance, it is called positive flow and otherwise negative cash flow. Notably, the closing balance of the day/month/year becomes the opening balance of the next day/month/year.

What is meant by Cash Flow Statement?

A cash flow statement is also known as a statement of cash flows. A cash flow statement is a statement of cash that shows the inward and outward changes in the balance sheet.

It breaks down the analysis of financing, operating, and investing activities. Essentially, this statement captures the flow of cash in and out and show its result on the balance sheet.

A cash flow statement is an important tool to determine the short-term viability of the company.

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Said that, managing positive cash flow statement is one among the other difficult challenges for a business. It is important for a business to be cash rich even if it is not having much idle cash.

Inaccurate management of cash flow can lead to unforeseen expenses. A cash flow can affect the liquidity of a business and no business would love to go to low liquidity situation.

Since lower the liquidity, higher the chances are for the business to suffer financial liquidity.

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So, a high liquidity and healthy cash flow will help the businessmen manage the business efficiently. Let’s take a look at 6 ways by which you can maintain a healthy cash flow for your small business.

Send Out Invoices Right Away

  • A business’s lifeblood is sales and invoicing. One has to make sure to keep track of their customers’ invoices.
  • Receivables will come in faster if the individual does it in this manner. 
  • The invoices should be simple to read and contain explicit wording. 
  • The due date should be specified in several places (ideally in bold), including at the top of the invoice and the bottom of the payment slip. 
  • If a late fee is charged, ensure that this information is included as well.
  • Consider switching to a cloud-based accounting tool with appealing, simple-to-create invoices if the present invoicing procedure is time-consuming. 
  • The business loan gives the freedom to spend some extra bucks on improving cash flow.
  • Invoicing apps prepare and deliver invoices to the customers via email with only a few clicks to address these issues.

Accounting Practices

Well, this point may seem vague but not all the businessmen maintain accurate accounts. It is important to have the correct set of numbers and data.

In addition to maintaining accounts and keeping good accounting practices, it is also important to update them timely and in not so long period phases.

KYC – Know Your Customer

Know Your Customer – these three words would definitely help in maintaining a positive cash flow. In other words, it is important for you as a businessman to do a check on the people before getting into business with them.

You can keep a check on their credit and payment practices. In case your customers are good buyers but bad payers, it is time for you to think about whether to continue business with them or not.

Dealer-Supplier Relationship

A good and healthy relationship with suppliers helps in maintaining positive cash flow. Building a good relationship with a supplier might take some time.

But it will definitely be very helpful when you will require inventory in advance. In addition, a good relationship will also help you buy goods and inventory on good rates and get the option of making payments later in the future.

Keep Updating the Inventory

Inventory and cash exist together – they go hand in hand. It takes skills to decide how much inventory and idle cash to keep. Each and every product present in your warehouse represents the liquid cash you otherwise would have.

So, you can invest in inventory during the time sales are high. This will help you manage inventory and liquid cash in the best possible way.

  • One has to list the items acquired that aren’t moving as quickly as the rest of the inventory. They might eat into the cash flow by tying up a lot of money.
  • Rather than buying more of what isn’t selling, get rid of it—even if it means selling it at a loss. You can get a Working Capital Loan to update the inventory.
  • It’s difficult to walk away from items that have been stocked in the hopes of seeing increased demand later, but that nearly never happens. 
  • Examine the sales patterns to determine when the busiest and slowest times are, and order inventory accordingly.
  • Take the essential procedures to ensure a constant cash flow if a considerable amount of money is stranded in the unsold merchandise.
  • Regularly review the entire inventory list, including property, products in stock, and so on.
  • Offer discounts to clients who buy old stock to encourage them to acquire it.
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Cost Cutting

It is important that you purchase only the things that you require and outsource the others. Many small businesses these days opt for a hire purchase plan (buying things on installment).

You can use this method for most of your activities, ranging from cars, light commercial and heavy goods vehicles to plant and machinery and office furniture. You must also ensure that you hire purchasing things at the best value in the market.

Consider Offering Discounts for Early Payments

If you announce that your customers would get discounts and other incentives if they make payments on time, then you will surely receive payments on time.

You can offer discounts of up to 1-2% on the amount due if they make payments within a few days (specified by you).

A positive cash flow is not away from you with just a few changes. Cash flow management is an important aspect for business, not just to have liquidity but also for the survival of the small business.

A good cash flow management will streamline your small business and allow you to concentrate on your core business without worrying about liquidity and cash.

  • Everyone loves a good deal, and giving consumers a discount for paying their bills on time creates a win-win situation for both. 
  • Getting the money early benefits the cash flow.

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Send Out Invoices Right Away

  • A business’s lifeblood is sales and invoicing. One has to make sure to keep track of their customers’ invoices.
  • Receivables will come in faster if the individual does it in this manner. 
  • The invoices should be simple to read and contain explicit wording. 
  • The due date should be specified in several places (ideally in bold), including at the top of the invoice and the bottom of the payment slip. 
  • If a late fee is charged, ensure that this information is included as well.
  • Consider switching to a cloud-based accounting tool with appealing, simple-to-create invoices if the present invoicing procedure is time-consuming. 
  • The business loan gives the freedom to spend some extra bucks on improving cash flow.
  • Invoicing apps prepare and deliver invoices to the customers via email with only a few clicks to address these issues.

Consider Leasing Instead of Buying

  • One pays in small instalments when an object is taken on lease, which helps with cash flow, and the Business Loan is used efficiently. 
  • Leasing will be the best alternative for sustaining a consistent cash flow for day-to-day operations. 
  • One can also use the extra funds to invest in something that will help the company in the long run, such as research and development, or get an MSME Loan.
  • One can sell outdated printers or out-of-date inventory and use the money to increase cash flow.
  • One might also consider leasing the devices rather than buying them, as this is a potentially more cost-effective alternative.

Manage The Account Receivables

  • Invoice promptly, track receivables rigorously and follow up on any past-due invoices immediately to increase the chances of timely payment. 
  • Delegate an accounts receivables (AR) manager to examine AR once a week to remain on top of receivables. 
  • They can not only keep track of past-due invoices, but they can also send out reminders to clients when an invoice is approaching its due date. 
  • One can remain on top of unpaid bills and shorten the time it takes to get paid by actively managing the accounts receivable. One approach to accomplish this is to encourage customers to pay on time.
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Increase The Prices

  • Many business owners are apprehensive about raising their rates. They are concerned that this will result in lower sales.
  • If the cash flow is suffering, it may be time to consider raising the product or service prices. Consider the following questions:

  1. How much do my competitors charge?
  2. Has the cost of equipment or inventory gone up?
  3. How much personnel is required for my inventory assembly or services?
  4. Do my prices reflect the time I spent developing my products?
  5. Is it possible that my pricing is too low? 
  6. Do my products appear to be low-cost or high-value?

  • Everyone wants to balance keeping the costs low and adequately compensating their staff for their hard work. 
  • The firm may be selling itself short if the prices are too low. Lower costs can make any organisation appear less qualified in some circumstances.

Expand your sales market

  • If the products are currently excellent, consider expanding the marketing efforts by taking a  CGTMSE loan
  • Consider fresh approaches to publicise the company. 
  • Consider whether there are any additional categories of people who could benefit from the services the company provides. 
  • Increasing the customer base is a terrific method to increase the cash flow.
  • One can encourage their current clients to spend more. Similar things should be sold together to stimulate more spending. 
  • Consider developing a referral programme to entice loyal clients to help build the business by spreading the news. 
  • To persuade more customers to use the store’s door-to-door delivery service, one has to offer discounts or rewards programmes, such as stamp cards for multiple purchases.

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If you need money for your business call us at 011 – 4310 – 9577 or you can drop us a mail at customer.care@ziploan.com.

Frequently Asked Questions

How can small businesses improve cash flow?

1) Use a software tool to stay on track
2) Expand payment options for customers
3) Match receivables to payables
4) Consider factoring in your unpaid invoices
5) Stay connected with clients

What increases and decreases cash flow?

Increases and decreases in current assets and liabilities are reflected in the cash flow statement.

What causes poor cash flow?

Cash flow gaps arise when your business expenses outstrip earnings. This may be caused by dipping sales, stagnant inventory or dismal debt collection.

How do you solve cash flow problems?

1) Access a flexible line of credit
2) Audit your finances
3) Create Cash Flow forecasts
4) Negotiate favourable credit terms with your suppliers
5) Prioritise credit control
6) Invoice quickly and accurately
7) Make business development a continuous process
8) Put an organised accounting system in place

What is a good cash flow?

A ratio less than 1 indicates short-term cash flow problems; a ratio greater than 1 indicates good financial health, as it indicates cash flow more than sufficient to meet short-term financial obligations.

What are the 3 types of cash flows?

The top three types of cash flows are:
1) Operating
2) Investing
3) Financing

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