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Five Actionable Tips for Improving Business Cash Flow Thumbnail

Five Actionable Tips for Improving Business Cash Flow

Five Actionable Tips for Improving Business Cash Flow


Effectively managing cash flow, or the money coming in and out of a business, is a central component of running a profitable business. Poorly managed cash flow can limit a small business’s ability to grow and thrive. Fortunately, entrepreneurs and business owners can employ several actionable strategies to improve their cash flow, thereby enabling them to feel secure investing in the business’s growth and powering through periods of financial hardship.

1. Get Organized

The first step in solving any financial problem is identifying the root of the issue. Poor cash flow can have many causes, including inefficient invoicing, poor inventory management, and wasteful spending in areas that do not provide commensurate value to the business. Identifying the primary source of your cash flow issue will help you make strategic changes that have the most financial impact. Regardless of the current state of your cash flow, the first step in making an effective change is getting a clear and up-to-date understanding of exactly how much money is coming in and out and how it is being allocated. When you don’t know precisely where your money is going and coming from, you’re limited in your ability to ascertain the effects of the different choices you’re making. You may exacerbate the cash-flow issue by making irrelevant or unwise changes. Creating a strategic and well-informed plan for assessing and improving your business’s cash-flow management will set you up for success. 

2. Be Proactive

When your business overreacts to perceived cash-flow crises instead of getting organized and strategically allocating money to cover future expenses based on historical data, it may blow minor issues out of proportion. This is because anticipating and planning for future expenses is crucial to managing cash flow on any scale, whether for a personal budget or a multimillion-dollar company. Of course, unforeseen costs and emergencies (e.g., a pandemic) may arise, but it is vital to have a plan to address periods of financial hardship. If you are organized, you will have an accurate idea of what types of cash-flow “surprises” your business is most likely to encounter, and you will be able to create a plan for how to prevent or mitigate the adverse effects of those situations. The vast majority of business expenses and the natural cycle of busy and less busy periods should be built into the business’s budget. To keep your budget up-to-date, regularly review your revenue and expenses from previous months and years so that you can more accurately predict seasonal trends, avoid preventable cash-flow issues, and take advantage of growth opportunities.

3. Leverage Debt Wisely

Debt can increase risk, but it can also be a powerful tool for managing cash flow when used wisely. Short-term financing options, such as lines of credit, securities-backed lending, or business loans, can help your business bridge the gap between outgoing and incoming cash when your business is in a pinch, and it can help you take advantage of a time-bound opportunity you might otherwise have to pass up. However, these solutions should not be your primary long-term strategy for managing cash flow. It is essential to avoid recklessly taking out high-interest loans or risky debt when you do not see a clear path to paying it off on time. When choosing financing options for your business, ensure you have a clear purpose for the borrowed money. Feel confident in your ability to pay back the debt based on accurate and up-to-date financial data. Last, conduct a thorough risk assessment to evaluate whether taking on debt is the right choice for your business. 

4. Reduce Operating Expenses

Keeping operating costs and overhead low is another key way to boost cash flow and maximize your revenue. Review your expenses regularly, and consider ways to reduce unnecessary spending without sacrificing quality, such as by renegotiating contracts, changing suppliers, or streamlining your business’s services or production process. Pay extra attention to anything you are spending money on but rarely using or anything you are not receiving a return on investment for. Categorizing your expenses based on priority will allow you to cut lower-priority spending and redirect that money to the areas that enable your business to flourish. 

5. Work With a Financial Advisor

Having a second set of eyes on a cash-flow issue can help you identify areas for improvement that you may have missed. An experienced financial advisor can guide you toward innovative financial strategies you may not have considered. As an entrepreneur or business owner, your financial needs and priorities may differ from those of other people. Therefore, it’s crucial to select a financial advisor with experience helping entrepreneurs and business owners. It’s also important to choose a financial advisor who understands the intricacies and unique considerations of helping a business succeed through strategic financial planning. 

Greg McLaughlin, CEPA®, at Business & Financial Strategies (BFS), has extensive experience helping entrepreneurs and business owners improve their cash flow and attain their personal and professional financial goals. He would love to meet you, learn about your financial situation and goals as a business owner, and explain how a financial advisor can bring value to your business. BFS offers numerous services for entrepreneurs and business owners, including business development planning, full-cycle retirement services, exit and succession planning, buy–sell agreements, risk management, investment management, and tax planning strategies. BFS’s financial advisors provide personalized guidance to help you, your family, and your business thrive. BFS has offices in Iowa City/Coralville and in Fairfield, in addition to serving clients throughout the United States. To learn more, call 319-358-7700 or visit us at www.BFSFinancialPlanning.com to schedule a complimentary 20- to 30-minute in-person or virtual initial conversation.

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