Finding positive cash flow is a common struggle for many small business owners, and it leaves you wondering how to improve your finances overall. Cash flow is a vital part of maintaining a healthy, growing business from day to day. It’s the short-term benefits from having a positive cash flow that will keep your finances growing towards your long term goals.
But learning how to improve your finances and your cash flow can seem like a complex juggling act of spending versus returns. If your mission is to get that working capital moving and furthering your business, then a positive cash flow is a must.
Here are 6 basic tips on finances to help you improve your cash flow for your small business or even your personal finances:
Make More Money
Sometimes the best tip on how to improve your finances is the most simplistic: find a way to make more money. Generating more income is the most critical way to increase your cashflow, especially if you’ve checked all the other potential culprits (see the 5 other tips below).
For improving your personal finances and cashflow, that could mean negotiating a raise at work, aiming for a promotion, finding a more lucrative job, or taking on an extra side business or odd jobs. Whatever brings in more cash.
When trying to find how to improve your small business’ finances and cashflow, it could be that your prices are too low. If you’re spending too much money on supplies and operating costs, but you’re simply not making enough money on sales, there are only two real potential problems, right?
Either you’re not selling enough, or you’re selling enough but at prices that are unrealistically low. There’s a difference between being competitive in your pricing and setting prices so low that your cashflow is stagnating.
It could be that you need to diversify your product because your client range is too specific. By broadening your appeal, you might bring in more business. Finding a way to simply make more money is always a very individualized task. Whether you’re looking towards how to improve your personal cashflow and finances, or those of your small business… find a way to generate greater returns and you’ll see improved cash flow instantly.
Even if there are some ways to improve your cashflow by fixing little operating flaws like the 5 tips below, just making some more money will always benefit your cashflow in addition to making some changes and overall improvements.
You could be raking in the money, but it’s not going to do you any good if you’re overspending. Of course, there are essential costs that you’ll always have to factor in: rent, utilities, operating costs, wages, inventory and supplies, in addition to your personal necessities. Funny how people need money to facilitate regular feeding, right?
So there are always going to be necessary costs in the business of making money. But if you do everything within your power to lower those costs, learning how to improve your finances will get a whole lot easier. Your cash flow will drastically improve if you can find ways to generate some more income, and cut back on your costs.
One way you can reduce your overall expenditures in your efforts on how to improve your finances and cashflow could be to simply ask for a reduced price from the essential suppliers that are necessary. But we’ll get to that in tip #5.
There are some basic ways to alleviate chronic overspending. They may sound simple, but if you’re serious about improving your cashflow, you’ll want to stop and assess. Make sure you’re doing everything within your power to cut overspending.
How’s your budget? Is it time to reassess your spending? Are there ways you can tighten your budget? Is there anything you can do to downsize? Where are you spending the most money from month to month? Wherever you find that you’re spending the most money, that’ll be the overspending that you’ll want to try to remedy in order to improve cashflow.
Can you cut down on inventory? What can you do to cut supply costs? If your cashflow is tied up in inventory, then your small business’ cashflow is going to grind to a halt until you move that inventory into real working capital. Try to be more conservative and cautious with your inventory and supplies. It’ll help keep the cash moving, and it’s an easy tip on how to improve your finances overall, despite the temptation to get a bargain when you buy in bulk.
Improving cash flow is more about the short-term rather than the long-term bigpicture. So focus on ways to cut costs now, and stop overspending where you can. Just like with your personal finances, your small business will never positively progress if it’s spending more than it earns. Sure, the first few years are tough. And you might be lucky to just break even. But there comes a point when you need to be making more money than you spend in running the business. Otherwise, it’s a bad investment for you, and for everyone involved. Cut costs and you’ll see improved cash flow, and a greater likelihood of your business surviving the first rocky few years.
Get Paid Faster
It’s in the word itself: you have to keep the cash flowing if you want to improve your cashflow and learn how to improve your finances more effectively. One thing many small business owners overlook: they aren’t getting paid quickly enough.
Your goal is to turn accounts receivable around faster and improve your cashflow. Those accounts are an asset, sure. But they’re not as desirable as working capital. It might be time to reevaluate your billing system if you’re looking how to improve your finances and cashflow. If you consistently have clients that are slow to pay up, the problem might stem from too few reminders.
Send an electronic invoice immediately, and follow up as often as necessary. Chances are, they simply keep forgetting. Frequent gentle reminders will help get those accounts paid up and the cash flow moving. Move it from an asset to working capital as quickly as possible if you need better cash flow.
In addition to more urgent invoicing, try to add some incentives to paying on time. If you already have incentives in place, then maybe you need to make them a bit more enticing to your customers. Offer discounts, free shipping, or a really good deal on their next purchase from you for customers who pay quickly.
Do whatever you can to get those clients to pay faster, so those assets can stop languishing in the accounts receivable asset pile. If you want real cash flow, you’ll need real cash… not the promise of it. Get paid, and get paid more quickly!
Take the Maximum Time Allotted to Make Your Payments
Consider it like a line of credit. If you take your time making your necessary payments, you’re freeing up that working capital for a greater length of time, and it’ll help to keep your cash flow moving as much as possible.
Stretch out those payables for as long as you can (without incurring late fees, obviously). The exception to this rule comes when your suppliers offer you discounts for early payment. In that case, take the discount. Otherwise, take your time on payables and your cash flow will stay healthy.
It’s like interest-free credit. If they’re ok with you taking the maximum time allowed to pay them,your suppliers will be fine with you paying later rather than immediately upon receiving your bill. This will help stretch out the time you have to utilize that working capital rather than tying it up in accounts payable and slowing the cash flow. If you’re looking for ways how to improve your small business’ finances and overall cash flow, one simple way to help is to take your time paying those accounts payable.
But again, if they offer you a percentage off or some other incentive for paying your bills early, then you should take them up on it. Hey you’re doing the same thing when you use tip #3, right? Fair enough.
Renegotiate Insurance, Mortgages, and Supplier Policies
Sometimes, all it takes is you asking nicely. You can completely circumvent these costs. You have to pay your rent, mortgage, insurances, and suppliers in addition to basic operating and personal costs.
But in addition to trying to cut back on unnecessary overspending and trimming your budget in ways how to improve your finances and cashflow, you might also be able to reduce your unavoidable expenditures a bit. A little negotiating might be in order.
Do some research. Find out if your suppliers could be overcharging you. If they are, produce some evidence to back that claim up. The stronger your argument against the prices, the more likely you are to get the supplier to reduce your bill. If they decline to match the more competitive prices, it could be time to switch to a more costeffective supplier.
But use caution; if they offer the best supplies for your business, it might not be wise to risk irking them. Sometimes you have to choose between better prices and maintaining good supplier relations. Use your own judgement. Things like your insurance rates and mortgage costs can also be negotiated in a similar manner.
It typically requires a bit of research into the market, plus a convincingly pathetic plea from you, the business owner. If your mortgage is simply too high and you can’t get it reduced enough to improve your long-term finances or your short term cash flow, it might be time to downsize and rent instead of own.
It’s not a surefire fix for how to improve your finances or cash flow, but sometimes asking politely for reduced prices using the strugglingentrepreneurtryingtoachievetheir-American dream thing can help cut back on your spending. It doesn’t hurt to try!
Often, the secret of how to improve your finances and cash flow can lie in where the cash gets stuck in the overall process. In both personal and small business finances, cash flow can slow down in certain areas.
Maybe you notice that your working capital tends to spend the most time in your accounts receivable, so you try to improve your billing techniques and get clients to pay faster. Or you see that it’s jammed up in your inventory, so you cut back on supplies. But occasionally, the cash flow within your operation is going pretty well. But it could do better.
So what’s the solution then? It could be that you’re not properly reinvesting that working capital back into ways to improve your business or personal finances. You have solid cash on hand, so your cash flow is fairly healthy. Although sometimes it can do more. Reinvesting some of that working capital into ways for how to improve your finances and business operations can help.
Reinvest that extra cash flow into a better accounting system to help find ways to save money or purchase equipment that’s been excessively costly to rent. Smart reinvesting into your business can help use your positive short-term working capital from cash flow towards a more long-term improvement in overall business operations.
Those smart improvements are ways to not only help the long-term goals for your business and finances, but can also help improve cash flow in less direct ways. Your short term capital could be invested in savings, or emergency funds for a day when an important piece of machinery that’s vital to your business breaks down.
Whatever you choose to invest your cash flow and working capital in, find a way in which its uses can help how to improve your finances. Set aside a bit of that extra cash flow you’ve earned yourself, and use it to finally think past the short term needs of your business.