How-To Optimize Small Business Cash Flow

Once your business is up and running, you’ll need to stay on top of many things to ensure it stays financially healthy and stable. One of the most important of these is your cash flow, or how much money is flowing in and out of your company.

Maintaining a positive cash flow is important for many reasons—being able to reduce debt, paying for your operating expenses and creating a buffer for times of economic uncertainty are just a few. For startup businesses, it can take some time to achieve positive cash flow, and even more work to stay in the black. Fortunately, there are a few things you can do to bolster your cash flow and help your business stay financially healthy as it grows.

  1. Monitor it constantly: The most important thing to do when optimizing your business’s cash flow is to track it. All too many business owners neglect bookkeeping, which leads to unreliable numbers and cash flow data. Accounting software can help you keep track of payments more easily, so you always have accurate numbers to work off of.
  2. Examine your payment terms: Take a look at how often you pay suppliers versus how often customers pay you for your products or services. If there are disparities between those payments, your cash flow might suffer in the interim. Encourage customers to pay invoices sooner by renegotiating your payment terms, offering early payment incentives or simply sending reminders for invoices. You may also be able to negotiate longer terms with your suppliers.
  3. Spread out payments: Are you paying all your bills on the same day? This can lead to a huge hit in your business’s cash flow and make cash planning more difficult. Instead, spread out your payments and utilize your payment terms to the fullest extent to hold onto your cash as long as possible.
  4. Reduce costs where possible: If your business is operating and stable but you’re still spending more than you’re earning, look for ways to cut your costs. Perhaps you can switch to a lower-cost service or eliminate the service entirely if it’s not serving your business. Also look for cheaper alternatives for your business supplies.
  5. Build a cash flow reserve: Having extra money in the bank doesn’t mean you should use it. Plan for a rainy day by saving extra funds in a cash flow reserve that can carry your business for three to six months. Having this reserve, along with access to other working capital sources, can help keep your company afloat if you run into unexpected trouble.
  6. Cash injection: During the startup phase, your business might need a little extra cash to get over a cash flow hump and begin seeing positive cash flow on a regular basis. A capital injection – whether through a loan or a personal investment -can give you the extra working capital you need to enter the growth stage of your business and hit your stride.

When operating a small business, cash is king, so monitoring and optimizing your cash flow is essential to growth. At Tenet Financial Group, we help small business owners discover financing options for launching and growing their business. Call Tenet Financial Group at (888) 901-3335, Option 9, to speak with a Senior Funding Consultant.