Nine Tips for Small Business Cash Flows

Thoughtware Article Published: Aug 05, 2020
Credit cards and money

For small businesses, cash flow is always top of mind; if you run out of cash, it’s game over. Especially in times of uncertainty, business leaders need to constantly identify opportunities to enhance cash flow to give their small business the highest chance for future success. Regardless of the steps taken to improve these cash flows, the most important aspect is diligently practicing the steps on a daily, weekly, and monthly basis. Everything from budgeting and communicating with creditors to innovating and forecasting should be a part of this routine. Here are some tips to get a better handle on cash flows.

1. Create & Maintain an Expense Budget

Budgeting and planning are at the core of expense management and predicting cash flows. Start with a simple plan using broad categories of cash sources and uses over three months. Then, measure actual and committed funds against the plan on a weekly basis. As you roll into the next planning cycle, expand the timeline and refine categories. Spending will naturally be scrutinized as the process is maintained.

2. Communicate with Creditors & Financial Institutions

Be proactive and call your financial institutions and creditors to inquire about options to restructure existing debt to align with your goals. There may be interest-only or extended payback options available. Investigate beyond traditional creditors. Are there any alternative credit arrangements that might suit your needs? Conversely, calculate imputed interest on vendor payment plans. Often, traditional lending can offer better terms than vendor-financed purchases.

3. Review Recurring Expenses

Closely scrutinize any recurring or subscription-based services. Recurring charges on company credit cards are a great place to start. Eliminate underused arrangements, or work with vendors to put noncritical subscriptions on hold. Reach out to additional vendors to negotiate extended payment terms and get out of minimum purchase contracts.

4. Reduce Occupancy Costs

Don’t be afraid to ask landlords for concessions. Lessors have a vested interest in high occupancy rates, so use that to your advantage. Investigate rental rates in your area with a commercial real estate broker. A broker will be happy to handle the legwork in a lease negotiation, often at no cost to the lessee. Gross leases, while uncommon, mitigate tax and common area expense creep. If a gross lease isn’t an option, negotiate ceilings to occupancy expenses controlled by the landlord. Often, a landlord will give an upfront abatement period (free rent) for committing to a long-term lease.

5. Be Innovative

Get creative with the revenue cycle. Are there options to shorten the collection process? Automatic, electronic payments have revolutionized many industries. If needed, a small discount offering can entice customers to move to new platforms and will be eclipsed by better collection rates. Embrace new ideas and don’t forget to keep your customers updated on new payment options. The traditional accounts receivable and accounts payable processes have become cumbersome on small businesses, resulting in high adoption of alternative payment methods. Check out our recent BKD Thoughtware® article, Ten Benefits of Accounts Payable Software, for more information on these alternative methods.

6. Consider New Products or Services

Similarly to being innovative, it’s important to continually consider new products and services. Can you provide other revenue streams while maintaining service levels to your core customers? The most successful businesses evolve over time to meet the demand of their customer base and generate more cash flows from operations.

7. Stay Informed

Knowledge is power, so stay on top of treasury management daily. Review and post banking activity as often as feasible. Don’t let past activity accumulate to be dealt with later, assuming everything is fine in the interim. There are limited windows for banks to help with fraudulent activity. Most importantly, up-to-date information is critical to measure against any plan in place. A modern system of record will ease the burden on daily accounting upkeep, so be sure to keep an eye on the latest options and technologies. Read our thoughts on a couple of good solutions for small businesses

8. Use Available Forecasting Tools

There are cloud-based accounting solutions for all facets of the accounting cycle, including cash flow forecasting and budgeting that can create forecasts based on your business drivers. If additional software isn’t in the budget, Microsoft Excel or Google Sheets has very powerful functionality and can be used to create multiple cash flow scenarios.

9. Be Protective of Working Capital

It’s normal to scrutinize business spending and take the above steps during an economic downturn, but successful companies continue this practice as the business experiences growth and success as well. Enhancing cash flows in fruitful times will compound the business’s success and stability as well as provide backup for the next down cycle. Always be protective of working capital!

If you have any questions, reach out to your BKD Trusted Advisor or use the Contact Us form below. Want to learn how we can help with your small business cash flow concerns? Check out our outsourced accounting services.

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