Creating a Lifeline: How to Improve your Business Cash Flow

Cash flow is the lifeblood of any business and without a steady stream of cash coming in, your company is going to struggle to pay wages, suppliers and other expenses that it needs to operate.

Sometimes, you just don’t have enough money coming in. Whether it’s from unforeseen market troubles or unexpected expenses that hurt your cash flow, you need to fix the problem as quickly as possible before your business starts to suffer. There are several ways to turn your cash flow around, or prevent it from becoming a problem in the first place. Here are a few things to think about when you are ready to make your cash flow stronger and steadier.

Make a Plan

You won’t be able to solve any problems you may have unless you know what you want to do. Taking the time to make a solid cashflow plan will help organize your thoughts and set you on the path to success.

If you are just starting out — or if you run into financial trouble along the way — you should lay out a cash flow strategy that extends for at least 12 months. This is a good rule of thumb because you will be able to forecast where your money will be coming from and how much you expect to earn over the year. As you grow and income is steady, then you can revisit the plan and adjust it accordingly.

Also, break your plan down into 52 weekly goals that you can track. You can easily follow along as the weeks roll by, and you will know how well your plan is working and what to do about it if it’s not. A simple spreadsheet can help you follow along. If you need help designing a spreadsheet, you can contact companies like ExcelMasters to design one for you so you can get your plan up and running.

Focus on Cash Flow Inroads

Once you have enough data to know when and from where your major sources of cash are coming in, you should focus on those to increase your cash reserves. If there is too much overhead in some of the smaller cash flow sources, you can even cut them out altogether by reduces the amount of services or products you offer.

To help keep those good sources of income flowing, you need to make it harder for the customer to say no to you. Eliminate any unnecessary subscription services that may cause customers to think twice before buying from you. You can also offer special discounts on your services, like one free month of services when they buy from you, or price reductions for repeat customers.

Making your products or services more appealing to the customers will give them incentive to buy, increasing your cash flow.

Revisit Your Debt Collection Process

Every business out there has to, at some point, deal with late payments or with customers who are refusing to pay. This can put a major strain on your cash flow. Take a look at your debt collection process and see if there’s anything you can do to make it more efficient.

Start by having electronic invoices automatically sent out on the first day a payment is late. Sometimes, people just need to be reminded that they missed their payment and are glad to make it. Also, use stern — but friendly! — language that clearly conveys the terms for payment so they will know exactly what to do.

If you have a particularly late payment, or if it looks as though they may not plan on paying you, a phone call or even a visit to their offices can help sway them and get your cash flow back on track.

Use Credit Cards for Recurring Payments

A quick way to free up cash is to pay your monthly payments — rent, utility bills, etc. — with your business credit card.

This may seem like a dangerous plan because of the possible incurred interest, but most credit cards will not charge interest if you pay the balance within 30 days. If you think you can clear your credit card balance at the end of each month, you can free up that extra cash throughout the month. Many credit cards also offer points or incentives for each dollar you spend, so you may even get rewarded a few times a year for using the card.

Don’t let cash flow problems ruin your company. Make a plan and implement it as soon as possible.

Emma Platt works for a business and finance consulting company. Always keen to help others out, especially if it means more people succeed in business, she writes for a number of small business blogs.