Cash flow is the lifeblood of your small business. It’s how you pay the bills, keep your employees happy and grow your company.
But what exactly is cash flow? And why is it so crucial to a small business owner? What strategies can you use to improve or maintain your cash flow?
In this guide, we’ll answer all those questions so you can implement them in your business.
Remember, when you are in a financial resource deficit – meaning you have no money to operate – you cannot keep the lights on in your small business. Without these assets running, you cannot sell more products or services.
If you want to succeed, you need cash flow. So, while we suggest hiring bookkeeping services in Niagara, here are some other tips to get started.
Why is Cash Flow so Important to a Small Business?
Cash flow is the difference between the money you have coming in and the money you have going out. It determines whether you can pay your bills on time.
If your cash flow isn’t enough to cover your monthly expenses, you need to increase your sales or decrease some of your costs—or both!
Is Cash Flow the Same as Income?
You may have heard the term “cash flow” before, but do you know what it means?
Cash flow measures how well your business can pay its bills. It is, quite literally, the flow of cash assets running through your small business.
If you make $1k per month in sales, but that money doesn’t come in until three months later, you don’t have any cash flow—you only have an income stream that hasn’t arrived yet.
Your employees still need to be paid every week (or every other week), so if there isn’t enough money coming into the company to cover those expenses, your firm will go out of business quickly.
Cash Flow Strategies for Survival
1 – Develop a Strategic Bill System
No matter what kind of business you’re running, it’s essential to pay your bills on time. It takes discipline to ensure all your monthly expenses are paid in full and on schedule. If you can manage this, it will help grow your cash flow by providing that no one is late with a payment or has their utilities shut off because of past-due bills.
Pay attention to when different bills come due each month and prioritize paying them in order from the most expensive (or pressing) down to the least expensive (or most flexible) as needed.
Talk to your providers to see if there is any wiggle room to extending payments or lowering the prices of your regular services like cable, internet, electric, water, sewage, parking, and more.
2 – Schedule a Reliable Payroll Cycle
Your payroll cycle is the time between when you pay your employees and when they receive their paychecks. The standard cycle for many small businesses is weekly, but this can be changed to match any cash flow needs.
If a business has irregular cash flows and receives payments throughout the month that need to be disbursed immediately, then it may make sense for them to move to a bi-weekly (every two weeks) or semi-monthly (twice per month) payroll system.
You need to balance the needs of your employee’s pay expectations and your current cash flow. You might be okay bouncing one check with your team, but two times and they are likely to start looking for a different job.
3 – Negotiate Inventory Costs
Negotiate the payment terms. If you’re paying in cash, ask your supplier to give you 60 days or more to pay. If you can’t afford the cash up front and need to make payments over time, consider asking for a discount or rebate on your next purchase.
The Cost of Goods Sold (COGS) and inventory are two of the most significant expenses for your small business. The more you can “trim the fat” from this expense, the greater your financial resources and cash flow. A solid tax accountant in Niagara can help with this equation.
4 – Ramp Up Account Receivables
Collecting payments is one of the most critical aspects of managing cash flow. The faster you can get paid, the more money your business will have in hand.
You may need to adjust your payment policies, so customers understand they need to pay on time or within a shorter period. This is just as important for those older accounts that owe you money. It may be time to designate an employee or vendor to start the collection process.
5 – Get a Business Credit Card
For small businesses, credit cards can be a lifeline. This is because they offer more flexibility than other financing options, like loans and personal lines of credit, typically reserved for larger purchases.
A credit card may be the way to go if a business has cash flow issues and needs to buy something quickly to stay afloat—or if it simply wants to avoid paying interest rates on loans.
Credit cards also have their drawbacks: they come with significant processing fees that could significantly affect your profits when using them as working capital. So, you may want to meet with accounting services in Niagara first to make sure this is a good decision for your situation.
6 – Don’t Forget Banks
A line of credit is a source of funds for your business that you can draw on up to a certain amount. It’s like having your own personal credit card with a bank, and it will come with the same interest rates and fees as one.
Small businesses that need extra cash flow often use a line of credit agreement. They borrow money temporarily when needed and repay it quickly when they get paid again.
Lines of credit work best for businesses with steady cash flow throughout the year or have regular seasonal peaks in sales volumes—for example, those selling Christmas decorations might have big sales during December but much slower times between January and November.
7 – Lower Expenses Without Sacrificing Quality
This is the easiest way to increase your cash flow, and it can be as simple as becoming more aware of how you’re spending money. If you’re wondering how much money you’re spending on certain things, take out a pen and paper and start writing down every single expense for a month (or even longer if needed). You might be surprised at what’s really going into your wallet or bank account each month!
It doesn’t matter what kind of business you run—if there are ways for you to cut costs without sacrificing quality or service, then do it! You’ll feel better about running a smaller company when everyone around knows that they get great value from every dollar spent with your organization.
8 – Automate with AI Technology
People often need clarification about the difference between automation and AI. The two concepts are different, but they can work together to benefit your business.
Automation is a process in which computers and machines take over tasks or processes that people used to do manually. This can include repetitive tasks like paying bills, logging data, or filling out forms.
AI is a broad term for technology miming human intelligence, such as learning and problem-solving abilities. In other words, its software designed with artificial intelligence algorithms (or computer code).
Both are used to streamline your operations, so you save money in operational costs and redirect your human assets to more critical issues like improving customer relations or developing new products.
9 – Offer Various Online Payment Options
You’ve probably heard that millennials are tomorrow’s generation, but you might not know that they also have a reputation for being notoriously difficult to please. That’s because millennials have never known a world without technology—they were born into it, and so they expect everything to be always available on their phones.
We’re talking about your customers here: they may take their business elsewhere if they cannot pay using their phones or computers.
And if you want to keep those customers happy and loyal, you’ll need to offer them as many options as possible when it comes time for payment processing.
While some people still prefer traditional methods like debit cards or credit cards (and those are always available), others might want something more secure like cryptocurrency or PayPal payments instead.
If you can expand your payment options to include these new methods, you may open entirely untapped target markets that could quickly scale your cash flow.
10 – Lease Your Equipment
If you’re not a high-tech business and don’t need the latest and greatest equipment to keep your business running, leasing may be a good option for your firm. Leasing allows small businesses to take advantage of more cutting-edge technology without paying for it upfront.
The cost-effectiveness of leasing, coupled with the flexibility that comes with being able to upgrade or downgrade as necessary, makes this one of my top cash flow strategies for small businesses that are strapped for cash.
11 – Increase Prices
You might be wondering if raising prices is a good idea. Yes, it is. In fact, if you want to stay in business and grow your cash flow, you must raise your prices.
You need to increase the price of your products or services to cover the costs of doing business, especially as time goes on and inflation increases the cost of living.
The cost of living will always go up over time—regardless of whether interest rates are high or low—and it’s important to continually raise prices to keep pace with this rising cost.
Just keep a close eye on your competition, so you do not price yourself out of your target market.
The Best Solution? Hire Accounting Services in Niagara
If you want to ensure that your cash flow is always in order and that you don’t have to worry about it, the best solution is to hire accounting services in Niagara.
If you are a small business owner or are thinking of starting a new business and need help setting up the books, hiring a tax account in Niagara can be an invaluable asset.
Our team at HQ Accounting can help you navigate how to improve your current small business cash flow. So, reach out today and book your 15-minute discovery call to transform your business into a highly efficient operation.
Wrapping it Up
In the end, it’s all about choosing the right cash flow strategy. The key is to find a balance between maintaining your business operations and ensuring that you have enough money each month to pay bills.
With a little tweaking here and there, you should be able to reach this balance, so you have reliable growth into the future.