There are many reasons why you may want to improve cash flow in your business. Maybe you’re looking to free up some cash to put towards growth, or maybe you’d like to build up your cash cushion to protect yourself from any bumps in the road.
Whatever your reason, we’ve got you covered. Sue Hirst, director of CFO On Call, gives us her 9 expert tips you can use to improve your business’s cash flow.
How to increase your cash in-flows
1. Increase revenue from sales
Review your marketing methods to increase leads or customers. Take your website, for instance. Is it getting enough traffic? Does it have engagement methods, such as landing pages and offers?
Review your sales methods to increase the conversion of leads to customers. Do you have a sales process in place or is it a bit ‘ad hoc’?
Review your pricing to increase the average sale amount. Analyse your best-selling products and services which will have the most room for a small price increase. Even a small percentage increase goes straight onto your bottom line! That is, a small price increase is different from selling more stuff or services as there aren’t any extra costs associated.
2. Increase ‘other’ cash in methods
Business loans: explore the various different providers of loans, not just your own bank. To do this you’ll need to present your business as an attractive proposition to a lender. This means providing them with accurate financial information that tells a story of a healthy business with good prospects to grow.
Issue shares: look into how you can bring in new shareholders. You will need to consult with an accountant to ensure you do it the right way and that it complies with corporate rules.
Sell some assets: review your assets and decide if some are obsolete and if funds from selling them off can be better used elsewhere.
3. Get paid faster
Review your customer payment process starting with ‘terms of trade’, invoicing, methods of payment, statements, follow-up calls, payment arrangement, and debt collection procedure. By looking at each step of this process, you can determine what’s working and what needs improvement. If you’re a Xero user, consider using Chaser to automate the task of chasing clients to pay their invoices.
4. Speed up project times
Use an application to manage jobs and avoid holdups. There are thousands of systems available online today that can save you lots of time and help you to work out profitability on jobs, as well as accuracy of quoting/budgets.
5. Sell off slow-moving or obsolete stock
Do a stocktake and review your stock management system to see which inventory is slow moving. Whilst it may feel difficult to sell obsolete stock at a lower price, the resulting funds can be much better utilised buying new items that will provide profit and cash flow, rather than sitting around collecting dust on the shelf!
How to tighten up your out-flows
6. Reduce expenses
Review every line of your Profit & Loss Report and ask yourself:
- Why are we spending this money?
- Can we achieve this outcome more efficiently and cost effectively?
- Should we stop spending this money?
- Can we get a better deal from this or another supplier?
7. Slow up payment to suppliers
We’re not suggesting here that you ruthlessly use suppliers as a bank, however we often see credit terms not being utilised and suppliers paid too quickly. This is a big waste of available cash for your business.
If you’ve been dealing with a supplier for a while, it might be a good opportunity to review the arrangement and see if you can get a better deal. Be armed with good information about what business you’ve done with them to support your request.
Also set up a competitive environment with suppliers, if you have more than one option. It may seem a bit heartless, but at the end of the day you’re here to make a profit.
8. Arrange to pay off tax debts
Some tax authorities will work with you to pay off tax debts over an arranged timeframe. Don’t automatically assume you have to pay off the whole amount at once. If you don’t ask you’ll never know.
9. Delay payments to shareholders
It’s tempting when you see the business making a profit, however if you pay dividends too quickly it could put a strain on your cashflow. Before making this decision you should create a detailed cash flow forecast, to ensure it won’t cause cash flow issues in the future.
That’s where we come in. Float can help you create powerful, actionable cash flow forecasts that update automatically from your accounting software, saving you time and giving you the confidence to make the right decisions.
Start your 30 day free trial now.
Sue Hirst is the director of CFO On Call and author of the e-book ‘The 7 Key Numbers That Drive Profit and Cash Flow’.