Knowing the importance of positive cashflow is one of the key elements of making your business a success story. Having a steady and predictable flow of cash into the company provides you with financial stability, and sets the foundations for your growth.
At the most basic level, good cashflow comes from increasing your cash inflows and reducing your cash outflows – and managing this ongoing process with a detailed eye to maintain that sweet spot. But how can you get proactive about enhancing your cashflow?
We’ve highlighted five easy ways to improve your cashflow, and by doing so improve your critical short-term cash issues, as well as the medium and long-term prospects of the business.
1. Cut back operating costs
Reducing your operating costs is an important way to reduce your cash outflows, and can quickly have an impact on your cash position. To make this work effectively, you’ll need to improve your focus on cost management and get granular with reviewing your spending.
To proactively reduce the operating elements of your cash outflows:
- Review your current costs – look back at operating costs, overheads and expenses over previous periods and get a more detailed overview of what’s being spent and why.
- Look for potential savings – having reviewed your operating costs, search for areas where quick savings can be made (e.g. switching utility suppliers to a cheaper provider, or limiting the number of company expense cards in circulation).
- Work to an average cost of overhead – create a ‘cost of overhead’ from prior periods and use this as a benchmark for your operating cashflow performance in future periods.
2. Try varying price points
Raising or lowering your prices can be a key way to boost the company’s cash inflows. When reviewing pricing, it’s important to maintain the perceived value of your products and services – and to ensure any changes have a positive impact on the cash coming into the business.
To make your pricing work as a means to enhance cashflow:
- Increase your prices – raising your price serves to bring in a greater income from the same number of sales, increasing your cash inflows and improving cashflow.
- Decrease your prices – Conversely, lowering your prices acts as incentive to your customers, increasing your sales and bringing in bigger revenues – which in turn enhances the position of your operating cashflow.
- Look at percentage changes to pricing – experimenting with price can be daunting, but with some careful thought you can make incremental changes that have a truly positive impact. Look at percentage increases/decreases that result in increased income or sales, without alienating customers or reducing the company’s overall sales numbers.
3. Use online tools to speed up payment
Getting paid on time is a vital element of positive cashflow. When customers pay quickly and reliably that’s good news for your current cashflow position. Using online tools and apps to improve payment times and reduce aged debts is a fast and straightforward way to get your cashflow firing on all cylinders.
To get your software working harder:
- Send your invoices online – most online accounting software, such as Xero, QuickBooks or Sage, will have online invoicing built in as standard. Email invoices directly to customers, getting you paid twice as fast as with manual methods.
- Use the latest payment gateways – making it easy to pay you removes the problem of late invoices. Use solutions like PayPal, GoCardless for Direct Debit, or card solutions like Square and add payment buttons to your online invoices to improve efficiency.
- Automate your credit control – chasing up late-paying customers takes time, so use the latest in automated debtor management software to streamline the process. Use a solution like Fluidly to email late payers and ensure that payment is made swiftly.
4. Be proactive about managing inventory
Inventory management has a significant impact on cash outflows. If you’re a manufacturing, product-based or wholesaler business, it’s important to review your inventory on a regular basis, and to manage spending appropriately in relation to cashflow. Manufacturing new products, or buying in goods, adds to your cash outflows and tips the cashflow balance.
To manage your inventory more effectively:
- Utilise the latest inventory apps – use apps like Unleashed or Trade Gecko and integrate them with your accounting software to improve inventory reporting.
- Review and improve your inventory processes – get proactive about enhancing your buying processes and managing stock levels in the most beneficial way for cashflow.
- Remove any low-selling products – when specific products aren’t selling, halt the purchase or production of these items. You can even free up cash by selling your surplus stock, turning a cash outflow into an inflow.
5. Be smart about cashflow forecasts
Cashflow forecasting helps you predict future cashflow, allowing you to spot the potential cash issues and take action to avoid any negative impact on the business. Having that heads-up is invaluable when budgeting, planning and building out your strategic thinking.
- Run regular cashflow forecasts – produce forecasts at key points in the business cycle to improve your understanding of the future cash path of the company. It’s good practice to run these forecasts at regular intervals:
- Daily – to see review any short-term cash issues
- Weekly – to keep tabs on the medium-term cash outlook
- Monthly – to provide a proper long-term vision of your financial future.
- Use smart cashflow tools – use a cashflow solution like Fluidly to get an enhanced view of your cash position across future periods – allowing you to get smart and highly proactive with your cashflow management and financial decision-making.
- Work closely with your accountant – having a financial professional to advise you on your financial modelling and working capital helps to streamline your finances and produce improved cashflow.
Get proactive with cashflow
By getting proactive about cost reduction and improvements to income, and using the latest smart payment and cashflow tools, you can quickly start to see a difference to your cashflow.
By keeping expenses low, and income high, you’ll soon be pushing your finances into that ideal positive cashflow position.