Tips for Improving Your Small Business’ Cash Flow


If you run a small business, you’ll know that cash flow can be a constant problem. While most businesses face a cash flow issue at some point, it’s important to take steps that will give you some breathing room so you can grow and thrive. For starters, it’s a good idea to address some common issues that can tighten your cash flow and make it difficult to meet payroll or pay suppliers.

Understand your cash flow patterns. 

Do you typically run into trouble at predictable times of the month or of the year? It’s worth a look at your cash flow records so you can identify trouble spots and take steps to prevent them. A thorough analysis might help you understand why you’re falling behind. Is it because of a specific client who always pays late? Work on that relationship. Alternatively, too many of your bills may be due at the same time, and you may be able to negotiate a different due date to spread out your outflow. A good analysis will help you build a cash flow forecast for the future so you’re less likely to be surprised by sudden dry spells.

Tighten your payment terms. 

While of course, you want to be generous to your clients, being too generous can hurt your business. Slow accounts receivables can put you in a cash backlog. If clients are taking too long to pay their bills, you might be finding yourself in a negative cash flow situation even if your sales are good. Consider reducing the time frame for payment. Offer an incentive to clients, such as a small discount for prompt payment. Alternatively, you could ask for a partial deposit upfront to immediately generate some cash. Once clients have gone past their due date on invoices, get proactive and get on the phone. If you’re using accounting software, there may be some tools built in to automate the process of reminders.

Renegotiate your accounts payables. 

Just as it’s important to get your clients to pay as early as possible, make sure you’re taking all the time you reasonably have to pay your own bills. While it may be satisfying to pay a bill the moment it comes in, it could lead to a cash shortage. Be certain to read through the terms to see how long you have to send in a payment. If you think you might be short, it’s also worth making a call to the supplier or vendor to try to renegotiate terms that will give you more time. Likewise, if you do have the cash to pay early without leading to a shortage, ask for a discount for paying promptly.

Consider leasing instead of buying. 

Nowadays, most things can be leased, including equipment and software. If you’re largely relying on purchasing, a switch to leasing can help you spread your expenses out more evenly instead of being expected to pony up large amounts of cash at times that may be inconvenient. Leasing may also make it easier for you to build accurate budgets and forecasts.

Consult with an accountant.

An accounting firm can help you better analyze and understand your cash flow to ensure that it remains steady…and positive. DOAAR is a small business bookkeeping, tax, and consulting services firm, with an additional focus on its clients’ personal finances. We offer bookkeeping, controller, and CFO services which include daily accounting, month-end close, complex financial modeling, and oversight. From execution to analysis and strategy, we provide clients with a powerful and fully integrated back-office accounting solution.