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If your business is profitable, but your cash flow is tight every month, this could inhibit your business from growing. However, incorporating these 10 tips for cash flow management may free up more money so you can expand and hit your goals.
At Business Funding Group LLC (BFG), we help small business owners secure Small Business Administration (SBA) loans so they can invest in their businesses. SBA lenders consider several factors in funding decisions, one of which is cash flow. In fact, it is one of the most important things they evaluate! The following tips could help keep your business stable and ready for continual growth.
1. Understand Your Numbers
Cash flow is not the same as profit, and it is important to know the difference. You should know the exact amounts coming in and going out on a daily, weekly, and monthly basis. Practice calculating cash flow by running projections and reconciling actuals.
2. Prioritize Cash Flow Over Profit
Profit does matter, of course. But cash flow is what pays the bills. It is possible for a business to be profitable but struggle to meet payroll if cash is tied up in unused inventory or unpaid invoices.
Focus on increasing cash flow so it is consistent and reliable. Money that is held up in receivables or excess inventory is not helpful to your business, at least not right now.
3. Keep Cash Emergency Funds
It is smart to keep at least six months’ worth of operating expenses in reserve. Managing cash in this way creates a buffer in case you have a slow sales month, multiple clients pay late, or an unexpected bill is due.
4. Get Paid Faster
Make it easy for clients to pay you by taking away any obstacles. For example:
- Send invoices right away
- Communicate clear payment terms up front
- Accept multiple payment methods
- Offer incentives for paying early
Having fewer obstacles to receiving payment means an increased likelihood of better cash flow for your business.
5. Project Future Cash Flow
You may be able to forecast what cash flow your business is likely to have in the next month by looking at past data and current projects or expenses. Doing this could help you make informed—and rightly timed—decisions about hiring, making big purchases, or applying for financing.
When you apply for SBA financing, lenders want to see consistent, positive cash flow, so it is important to make smart decisions based on cash flow projections.
6. Reduce Your Business’s Costs
Tighten up operating costs to increase cash flow. Look at recurring expenses, such as subscriptions you might not be using or vendor pricing that could be better negotiated. Even small reductions could make a big difference.
7. Boost Revenue
Look for ways to increase your average order value without adding to your workload. For example, an e-commerce business might consider offering free shipping for higher transaction values. This could ensure more cash per sale.
8. Invest in Branding and Customer Service
Customers are generally willing to pay more for businesses they trust. Investing in your branding and customer service could justify higher prices.
Strengthening your brand gives you pricing power—and higher margins mean better cash flow.
9. Eliminate Waste and Unprofitable Work
If there are products, services, or clients that are slowing down cash flow or eating into profits, it might be time to let them go. This may look like:
- Reducing inventory that is not moving
- Working towards more efficient operations
- Automating tasks
- Speaking with clients who consistently pay late
By eliminating waste and increasing the efficiency of your systems and resources, you are using what you already have to manage your cash flow more effectively.
10. Have a Strategy for Growth
The final tip for managing cash flow concerns growth. Growth should support your cash flow, not inhibit it. Before you take on new opportunities, do your due diligence. This could involve researching markets, verifying clients’ creditworthiness, and considering costs.
Part of a successful growth strategy could be SBA loans. These loans offer longer repayment terms, flexible use of funds, and competitive interest rates. This often translates to low, manageable monthly payments, which frees up more capital.
Contact Us for More Tips To Help You Manage Cash Flow
These 10 tips for cash flow management are just the beginning. BFG has decades of experience helping small business owners like you grow your business with effective strategy and SBA financing.
Call us today or fill out our application online to see if an SBA loan could help you with your business’s cash flow.