How can a small business short on cash improve its cash flow?

Cash is the lifeblood of every business; it pays the bills, the staff, and everything in between. Healthy cash flow lets a business meet its obligations and explore new opportunities.

Not having the money to cover an expense is frustrating. It feels even worse to miss a good deal because the bank account is a little thin. The good news is that thoughtful management can help most businesses find more money in their operations for day-to-day cash flow needs and unexpected opportunities.

Cut and Control Expenses

There’s only one place to start when you need to find cash, and that’s figuring out where to cut and control expenses. Something’s costing more than it needs to, somewhere, at nearly every business. Sometimes there are items or services no longer needed. Other times the business can get a better deal from a different supplier for goods or services. The utilities, phone bill and office expenses are regular costs for all companies, and when a business has been around for a while, they fade into the background. A smart owner regularly re-examines those recurring bills to see if lower charges or a better deal are available. Any dollar that does not get spent goes straight to the bottom line. When cutting expenses isn’t an option, what about asking people and companies you work with, or use, if they offer discounts for early payment? Easy credit sounds like a good thing, but it can come at a steep cost to the bottom line with high interest charges.

Loans have a purpose, but they don’t necessarily need to be the first stop when more capital is needed. Debt can be a smart investment when there is enough new revenue in the plan to comfortably make the payments. With too much debt, everything just costs too much. New loans deserve special attention and more than one lender should offer details and terms. The bank that does the deposits isn’t necessarily the only place to get a loan, either. When it’s time to replace or update equipment, compare the cost of leasing with financing a purchase. Many capital equipment leases are, in reality, just debt in disguise, set up so the lessor recovers its cost, plus interest, and fees in exchange for providing the equipment at the start of the lease. Smart buyers shop for used, or refurbed equipment. Likewise, sometimes outsourcing the job that needs the equipment is the best financial call.

For short-term expenses, a line of credit can be a business-saver. These work like a credit card, where interest is charged only on the money that’s used. Problems occur when that becomes the first call to solve a cash crunch, and those draws become a revolving balance. The ongoing interest, month after month, is a silent cost that can destroy the budget.

Inventory can tie up cash, too: having too much stock, or having inventory that isn’t moving, is putting money on the shelf that might be better spent on something else. A sensible inventory system should know, at all times, what the minimum quantity of supplies needed to keep the business running. Work-in-progress is another overlooked cost; the labor and materials put into a job that’s been started only become cash once the job is finished, billed, and paid.

Prompt Billing

Establish strict, written guidelines for prompt billing, which also sets a written policy to base collections on. Offer early payment discounts, require deposits up-front, and use the internet to get money into the bank as fast as possible. Beyond billing promptly, it’s also vital to encourage clients to pay on time. A quick call or email after delivery to make sure everything is on track gets the bill more attention, too.

Working with a Tax Specialist

Taking advantage of deductions that are allowed for businesses by the government can put that money to work for your business. A skilled tax professional looks at the rules each year and can point out breaks and credits for things like buying alternative energy property. Depending on the specialist, they can also be useful for helping a business understand bookkeeping, manage payroll, or set up easy analytics to make the numbers clear. Working with a tax specialist is an investment, a relationship, and key to a sound long-term cash flow strategy.

Finding and fixing cash shortfalls is essential to making sure the business can stay on track with bills and financial goals. As a business’ cash flow improves, the budget, income, profits and how the business deals with creditors should also become more stable. When cash flow swings erratically and can’t be predicted, it’s time to get professional advice and analysis.