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Knowing Your Cash Flow and How to Improve It

cash flow

Cash flow is a top priority for any small business. It’s becoming increasingly important for entrepreneurs to stay on top of their finances no matter what the market is like.

Cash flow is a key factor for the health of any business. Without a good business cash flow, you can’t invest in your business. If your access to cash is  limited, you may have trouble with basic expenses such as payroll. 

Developing a cash flow plan has many benefits. It provides valuable insight, measures your progress and gives you a clear financial picture. 

Once you get a good grasp on how your money is moving in business, you can gain better control of how you spend your cash and lessen unnecessary expenditures. The numbers can give you a dose of motivation to stay disciplined in spending. You’ll also be able to forecast how much you’ll earn in a week, month or year ahead so that you can see where your money is going, how much you’ll earn, and when it is more favorable to grow your business.

Let’s explore some ways to improve your cash flow! 

Analyze your Cash Flow. 

When looking at your cash flow you need to analyze multiple statements over time and consider factors such as seasonal fluctuations and external events that you can’t control such as the COVID-19 pandemic. This will give you the full picture.

Plan Ahead to Secure Your Cash Flow

Don’t let expenses catch you by surprise. Manage your spending by looking for discounts, avoid late fees, and always be prepared for additional expenses. 

Reduce Spending 

Even small operating expenses add up. Make your business more energy or fuel efficient. Negotiate with suppliers for better terms. Check for recurring payments that you no longer use. Every dollar counts.

Have an emergency fund

You never know when you might need extra cash due to a loss of business or an unexpected expected expense. Put aside a certain amount of money each month in a separate account that you don’t touch unless you are in dire need.

Create a clear payment schedule

Bill your customers as soon as possible. Make sure your invoices are clear, with a payment due date and penalties for late payments.  Track your accounts receivable and follow-up with customers when payment is not received on-time. You could even set up automatic invoice reminders in your accounting software. 

Know your expenses

Analyze all the expenses associated with running your business and each project/ item your business provides. The more aware you are of how each expense contributes to your profits, the better you can manage cash flow and rates. 

Timing is everything

It is not only about how much you spend, but when you spend it. This probably varies according to the season and other factors affecting business. Be aware of how expenses are likely to rise and fall in the coming months, so you can be prepared when your bills come due.

Review your rates

If you haven’t raised your prices or rates recently, you may be overdue for a price increase. Most businesses consider raising their prices every two to three years. Make sure you are actually making money.

Pay your taxes 

Delays in filing taxes carry penalties that harm your cash flow. The CRA imposes strict penalties for delays in filing and paying your taxes.

Have a bookkeeping system

In order to improve cash flow, you need easy access to all the numbers. User-friendly software makes it simple to perform cash flow analysis. 

 

These are just a few ways that you can increase and improve your cash flow in the coming months to set your business up for success!

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