Tips to Boost Cash Flow for Your Business

By Ram - Feb 29 2024

Does your business have a low cash reserve and often has more money going out faster than coming in? Maybe you’re late with your Business Activity Statement (BAS), often have trouble paying suppliers for more than 60 days, and frequently change suppliers because of late payments and your suppliers insist on upfront payment.

If you are in these situations regularly, you should deeply dive into your cash flow situation to identify the problems.

If your cash flow is struggling, your business is struggling. Sometimes, the business’s growth could be causing all the havoc. And while you might not be having any significant problems at the moment, if your cashflow problems are not addressed, they could spiral out of control and end your business.

A few tips could be all you need to resolve your cash flow problems. Here are some to get you sorted for the next financial year.

  1. Plan Your Budget for the Year

The best place to start when fixing your cash flow issues is by setting out your budget for the year. Review last year’s financial numbers and audit your revenue vs. expenses. Then, consider the year ahead and the external factors affecting the business’s performance and expenses.

Are you expecting the same turnover and similar levels of expenses? If this is true, the previous year’s numbers should be the forecast for the next financial year.

But if you plan to grow and expand the business, you need to know what is required to achieve the growth and how much it will cost. Factor in the additional revenue you hope to bring in after the growth and the additional cost of the business expenses.

While at it, consider getting an emergency fund for contingencies and ensure you have enough cash flow through the expansion phase of the business to avoid disrupting operations.

By planning for the year, you have a good idea of the expenses and how much you need to put aside for emergencies based on the growth and projections of the business through the year ahead. With the numbers, you can better plan ahead and ensure you have enough money to meet your business’s obligations.

  1. Optimise Your Invoicing Process

The most certain way to improve your cash flow is to increase the money coming into the business. You can encourage your clients to pay as early as possible.

Work out what the average invoice days outstanding is.

Optimising your invoicing process to ensure your clients receive them early and on time is one of the best strategies to achieve this.

You can also provide them with an incentive that encourages them to clear the invoice early. A simple gesture like a discount is an excellent place to start. You can also think about penalties for late payments to discourage late payments.

Should you decide to make these changes, you should update your payment terms and ensure they align with legal requirements. Consider introducing a 50% upfront payment for orders above a certain amount to ensure a healthy balance between occurring costs and incoming money. This will also provide you with insurance.

  1. Cut on Some Business Expenses

Ensuring your business has enough cash flow will come with making cutthroat decisions regarding your business costs. Besides bringing in more money, another way to improve your cash flow is by reducing the money going out.

A good look at recurring business costs is an excellent place to start. Are the costs accurate and necessary, or are there areas in which you can trim the fat?

Get creative about cost-cutting by thinking about new technologies that could allow your business to remain efficient at a fraction of the cost through automation. You can also consider renegotiating prices with your current suppliers. To manage your supplier payments, make the most of the payment terms. You always want to avoid late payments. But try to keep the cash in your account for as long as possible and automate payments on due dates. This approach will maintain and boost cash flow while ensuring your timely payments.

  1. Think About Invoice Financing

You might still be in a financial hole even with the best planning. In such an instance, businesses turn to short-term loans to plug the financial holes and keep a steady stream of cash into the business.

Going for loans is challenging. Applying for bank business loans is a lengthy and bureaucratic process that rarely delivers on time. Additionally, taking a loan only adds to the business’s overhead because they have to make monthly payments to cover the loan.

A quick and straightforward solution to this would be to go for invoice financing. With factoring companies like Key Factors, you can leverage your unpaid invoices to get a cash advance. Besides this approach being faster and more efficient, it also doesn’t add to the business’s overheads because there are no monthly instalments to pay.

Typically, you can get the funds within a few hours and choose how many invoices you want a cash advance for. This provides a quick cash injection for the business when it needs the money with a simple and transparent one-off fee. Additionally, this financing option needs to control how you use the funds. You can use the money to pay your employees, keep up with your ATO obligations, purchase equipment or expand the business.

Conclusion

Maintaining a positive cash flow is a precarious balance, especially for small and medium businesses that are growing rapidly. Not having enough cash flow can mean you can’t pay employees or keep up with your suppliers even when the business is still selling and providing services. By following and enforcing some of these tips, you can improve your cash flow and ensure your business’s growth is felt by your employees and your suppliers as well.

When you find yourself in a tight spot, services such as invoice financing and invoice factoring from Key Factors can provide you with a quick injection of cash without adding to the business’s debt factoring.

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