8 tried-and-true ways to improve your business’ cash flow

What business owner doesn’t have months – or years – of cutting it close to the bone? But time and again, you manage to get through it. How is it, you wonder, that we can have such cash flow gaps, with a steady stream of customers and revenue?

It’s not only possible but common, too. It means you need to zero in on your cash flow—and on specific things you can do to manage and improve it. Fixed monthly expenses are unavoidable—rent, utilities, loans. But there are variable expenses, too, that are harder to forecast. Do you know the number one reason small businesses fail? Under-capitalizaton. Yep. Cash (and how it flows) is the lifeblood of business.

And how your cash is flowing depends on a variety of factors, many of which are in a state of flux most of the time. Sales ebb and flow. Payments can be fast or slow. There may be seasonal peaks and valleys. You can’t control all of it, but you can take steps to anticipate and manage cash flow. And you don’t need to be a financial wizard to do it.

Assess where you are today

Before anything else, you need to make two predictions: 1) How much revenue do you expect from sales this month? and 2) What are you predicting for fixed and variable expenses? If the first exceeds the second, you’ll have positive cash flow—ideal. Unfortunately, this won’t always be the case.

But, you can hedge against less-than-ideal cash flow by doing monthly reviews of your expenses and anticipated revenue. Do them religiously, without fail. Then consider these eight tips to further improve your cash flow:

Try for credit card and cash payments when orders are placed. Collecting upfront instead of waiting until after delivery obviously speeds payment. This is an increasingly common practice.
Improve payment terms on extended projects or services. Even if you can’t collect the entire amount upfront, try to collect a portion when the order is placed. Deliver the final product upon payment in full.
Make a portion of your payroll variable.With fluctuation cash flow, consider paying employees when you need. Or tie payroll to sales or revenue. Hire independent contractors or seasonal workers who can agree to variable hours that parallel business activity.
Discounts for timely payments. Offer discounts on invoices paid in 30 days. Many businesses are offering discounts of 1% to 2%.
Negotiate extended payment cycles during peak seasons. Do this in advance, not when you’re past due on something. Talk to vendors about your cash flow cycles; many will be willing to work with you. If there’s no flexibility, it’s time to shop around.
Track inventory and supplies. Identify areas of waste (There always will be some) and make improvements that will save you money.
Shorten your product or service cycle times. Deliver faster. Invoice more quickly. Get paid sooner.
Have emergency strategies and a backup plan. Keep a cash reserve or a line of credit, or even some low interest credit cards with zero balances. Use only in emergencies!