6 practical ways to improve your cash flow so that your business can thrive
As inflation continues to stay stubbornly high in the UK, businesses and consumers alike are working hard to try and make their money go further.
As a business owner, your cash flow may have taken a bit of a hit as consumers reduce their spending and suppliers charge higher prices to cover their own costs. This can have significant implications for your business and its growth.
So, read on to discover six ways you could boost your cash flow to enable your business to continue to thrive.
Cash flow affects more than just your day-to-day spending
Having a healthy cash flow is essential for covering your business expenses. Having enough liquid assets to draw on can avoid you needing to borrow money to cover your bills.
It could also enable you to invest in your business when you need to, whether that’s hiring more staff to keep up with demand or buying new equipment that means you can offer a superior service.
There is another benefit to having a healthy cash flow that is especially important for you as the business owner. If you come to sell your business in the future, one of the first things a potential buyer will look at is your cash flow.
A business that has a healthy cash flow is a much more attractive proposition than one that struggles to pay the bills every month. So, keeping a close eye on your cash flow and maintaining it properly could help you to sell your business for a higher price when the time comes.
6 ways to improve cash flow in your business
Fortunately, there are lots of ways to improve your cash flow, even during times of high inflation. Here are six suggestions that could help.
1. Review your payment terms
Your payment terms can be make or break when it comes to building a healthy cash flow for your business. If you need to pay your suppliers, office rent, or wages before you have been paid by your customers, you may struggle to keep up with costs.
To help make sure you always have enough cash in the bank, check your payment terms for both your suppliers and your customers. Ideally, you will want to ensure your customers pay you as soon as possible, and before your other bills are due for payment.
2. Build up emergency cash reserves
In the same way that it’s a good idea to have an emergency fund to help you cover any unexpected personal expenses, your business should have the same safety net. Having an easily accessible pot of cash that is reserved for times when your cash flow is struggling will help to ensure you stay in the black.
This could be used to cover wages in months when income is lower than expected, pay unexpected bills such as office repairs, or even to take advantage of growth opportunities without you needing to take out additional loans. Another benefit is the peace of mind it can bring to know that you have a financial safety net in place.
3. Increase prices if needed
This one can feel uncomfortable, but as a business owner it will be necessary to increase your prices at key milestones to make sure you aren’t losing money as a result of rising costs.
Over the past year, you’ll no doubt have noticed the rise in inflation that has affected everyone in different ways. Small business owners have been hit particularly hard, since as well as the cost of supplies going up, rising interest rates have meant that borrowing is more expensive too.
So, if you haven’t increased your prices to keep up with these rising costs, this could affect your profits as well as your cash flow.
4. Reassess expenses
Every business will have expenses that are necessary for them to be able to run effectively. Whether it’s staff costs, software, raw materials, or memberships with trade unions, it’s highly unlikely that you could cut down all your expenses.
But sometimes you might have monthly or annual expenses that are no longer needed, such as:
- Subscriptions to premium software that you no longer use
- Office stationary
- Marketing efforts that aren’t achieving your aims.
So, take the time to review your monthly and annual expenses and identify any areas where you could reduce spending so that you can keep more cash in your business. It’s important to do this on a regular basis so that you avoid unnecessary spending for extended periods of time.
5. Create regular cashflow forecasts
One of the most helpful things you can do to maintain a healthy cash flow is to continually look ahead and plan. This is particularly important if you know that you have some large expenses coming up because it will mean that you can mitigate the potential impact of them on your cash flow.
An annual or quarterly cashflow forecast can help you to keep your business on track and ensure you always have enough cash in the bank to cover your essential expenses while also growing your business.
6. Make treasury management a priority for 2023
Treasury management is a vital yet often overlooked business function. It involves reviewing how the money in your business is organised in order that there is working capital to maintain operations. It also assesses whether a change to your holdings could be beneficial for improving liquidity and reducing risk in the business.
For example, following the extensive increases in interest rates over the past 18 months, looking for business accounts offering more favourable rates could help you make the most of any cash reserves that your business holds.
Regardless of any changes to interest rates, though, keeping treasury management on your list of priorities could help you to ensure that you always have a healthy cash flow, as well as enabling you to mitigate financial risk and maintain vital lines of credit.
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If you’d like to learn more about how we can help you to manage your personal and business finances to achieve your life goals, please get in touch.
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Please note
This article is for information only. Please do not act based on anything you might read in this article.