Business Advisory
By Edelkoort Smethurst CPAs LLP
Running a business comes with risks and uncertainties. One source of uncertainty and stress for many business owners is their cash flow. While your bottom line or profit is essential, cash is still the most important valuable asset for your business. Having a healthy cash flow is vital to staying in business.
A business with a healthy cash flow can take more risks, invest in future opportunities, and will be able to stay afloat for longer. Keeping your cash flow positive can be the key to staying in business long-term.
Negative cash flow can be a difficult thing to experience for any business. You may feel like you’re stuck and unable to execute your plans, or you might be constantly worried about not being able to meet your payables or loan payments.
We explore some of the best ways to help your business’ cash flow. With a bit of evaluation, planning, and action, you can turn your cash flow from negative to positive.
Five Tips to improve cash flow in your business
Evaluate your expenses and make cuts where necessary
To get your business’s cash flow back on track, one place to start is to evaluate your expenses. Typically this is the area many business owners can control the most.
Take a look at your expenses to determine, are there any areas where you can cut costs?
Some ways to reduce your expenses and increase cash flow may be:
- renegotiating contracts or terms with vendors
- have smaller inventory on hand
- take a look at recurring monthly expenses, such as software and licenses
- evaluate discretionary expenditures, such as marketing, supplies, or travel-related costs.
Slow down your billing cycle
Many vendors or suppliers offer discounts when you pay invoices early. If you anticipate only a short-term cash crunch, it may be helpful to delay paying your invoices, where possible.
This can provide little breathing room in the short term. You might be waiting to collect payments from your customers. Opting to pay bills only when they are due, rather than earlier, can help you save the cash you need in the short term.
Increase your Revenue and Cash from Customers
A long term strategy to increase the cash flow in yoru business is to increase sales and how quickly you collect the revenue.
If you can find new ways to bring in revenue or collect your payments quicker, this will help offset any expenses you’re working on cutting down.
Here are a few suggestions to help you increase the revenue or cash collected in your business:
- expand product lines to offer a more extensive selection for your customers
- engage with new customer bases
- raise your prices to increase your margins
- offer incentives for customers who pay their invoices early
- increase the average sale per customer by offering bundling or discounts
These actions may take a little while to turn your business’ cash flow from negative to positive. However, these strategies will result in a healthier, more viable business for you in the longer term.
Bring in a cash infusion
One way to immediately improve your business’s cash flow is to get an infusion of cash. If you anticipate being in negative cash flow in the medium term, maybe while developing a new product, constructing a new property or considering an acquisition, a cash infusion from a loan or investment can be a welcome change.
It is essential to note the downsides of some of these options. Additional loans can strain cash in the long term with payment obligations while going down the equity route with new investors can dilute your existing share of the business. However, if these can help you take advantage of opportunities to invest in your business and lead to a greater return in the future they might be worth it!
Get help from an accountant or financial advisor
If you are unsure where to start to improve your business’s cash flow, or need a few suggestions, seek out help from a professional. An accountant or financial advisor can help you assess your current situation and make recommendations to improve your cash flow.
Professionals, such as a CPA, can look through your financials, especially your cash flow statement, to help you evaluate the most significant sources of strain on cash in your business. They can help you understand how money goes in and out of your business and recommend a plan of action that can help keep you afloat for the longer term.
Managing your cash flow is the key to staying in business long-term
These are just a few tips to help you get started. If you’re experiencing negative cash flow, it’s vital to take action and find a solution.
Some cash flow strategies will work better for the longer term, while others may only provide a short-term fix. The decisions you make to increase the cash flow of your business will be unique to your company and industry.
The most important thing you can do when trying to recover from negative cash flow is to take action. By improving your business’s cash flow, you can get your business back on track and avoid any further financial difficulties.
Contact Edelkoort Smethurst CPAs LLP in Burlington for Financial Advice for your Business
Talk to an expert business advisor to turn your cash flow from negative to positive. At Edelkoort Smethurst CPAs LLP, our team of business planning experts can provide you with personalized recommendations on how your business can improve operations to generate cash. To learn more about how Edelkoort Smethurst CPAs LLP can provide you with the best business planning expertise, contact us online or by telephone at905-517-2297.
