Advanced strategies to improve cash flow
Consider these accounting practices to maximize cash flow.
You may already know some of the basic guidelines for maintaining a positive cash flow. From appropriately pricing your goods and services to invoicing customers in a timely manner, you know how to manage your expenses and income. But implementing additional, more strategic practices may improve your cash flow and help set your mind at ease as you grow your business. Here are three cash flow strategies to consider putting into use.
Review internal systems to reduce costs
Analyze all the processes that your business utilizes and whether they're still the most efficient way to move forward. Over time, systems can get clunky, methods become outdated, and processes become redundant.
Reviewing your business systems at least annually will help you eliminate or combine costly steps, which may free up cash and help your business run more efficiently.
"Efficiency equals time, and time equals money," says Denise O'Berry, author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success.
You can hire a firm or consultant, or you can get your teams in a room together and map out all internal processes on a whiteboard, O'Berry says.
Take a closer look at your sales, HR, and finance systems and ask: Do all of these steps still make sense for my company? Where can we make improvements in our processes? What new tools and methods can we implement to simplify business? Look at every single step from start to finish and determine if it's the best way to serve the customer and run your business.
Plan ahead with cash flow worksheets
"Cash flow worksheets are the number one thing I recommend to business owners looking for ways to improve their cash flow," says O'Berry.
With a cash flow worksheet, you can evaluate your business on a 12-month cycle and use it to create a cash flow projection. You can estimate monthly sales, expenses, and product performance, and get a clear picture on when money goes out and comes in. If you're not sure where to begin, you can find free cash flow worksheet templates online, from sources like QuickBooks or SCORE.
"Cash flow worksheets tell the story of your business," O'Berry says. "They tell you when to expect peaks and valleys, when recurring expenses take place, when your best months are, and what times of year you need to hold onto your cash more tightly."
Set short payment terms
Many business owners instinctively give customers 30, 60, or 90 days to pay, but those timelines aren't mandatory. Instead, set your own terms upfront. Since collecting outstanding invoices can be a huge business challenge, it may help to establish a billing process that's tailored to your business.
Waiting to be paid is a cash flow killer, so don't wait. O'Berry recommends setting the shortest terms possible, which could be anywhere from three to 10 days. "Don't get stuck in the 30-day invoicing cycle," she says.
Accepting more types of payments can also improve your cash flow. By accepting credit and debit card payments from your customers, you can ensure that you're not limited to cash/check only sales and you can receive funds as soon as the next business day (not having to wait to cash a check or visit the bank).