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A positive cash flow is the lifeblood of any successful small business. When your supply of capital begins to dry up, you can’t afford any delays in finding a solution. Identifying ways to improve your cash flow quickly can help your small business avoid any snags that could disrupt operations.
When time is of the essence, here are six ways to get the numbers moving in the right direction.
- Reach out to clients with significantly past due invoices
Allowing unpaid invoices to linger is a relatively easy way to sabotage your cash flow. The longer an invoice is outstanding, the longer you may be forced to put a strain on your cash on hand.
Review the books for invoices that are well beyond the payment date specified by your contract. For example, if you expect payment on a net-30 basis and you’re now 60 days out from the date the invoice was issued, it’s time to give your client a call. Politely, but firmly, requesting payment can help turn a dwindling cash flow around.
If you don’t have a pre-established contract outlining when payment is expected, it’s time to put creating one on your to-do list.
- Renegotiate vendor contracts
Establishing good working relationships with your vendors or suppliers is essential to ensure that you’re receiving deliveries or services in a timely manner. It can also be useful in improving cash flow. If you have a good rapport with your vendors, you may be able to carve out some savings for your business by asking for a discount. Being able to spend 5 to 10 percent less on the things you need means you have 5 to 10 percent more money to add back to your cash in reserve.
- Consider a flash sale or promotion
Maintaining a steady stream of customers is critical and if sales have slowed down a bit lately, offering a special promotion or sales event may be just what you need to perk things up. Regardless of how you structure your sale, the goal is to incentivize your customers in some way so that they’ll be eager to pay for what you have to offer. Just keep in mind how much you stand to profit by offering a discount or sale to make sure it’s worth your while.
- Sell off unused equipment
Having the right equipment is important, but it’s possible to have too much of a good thing. If you don’t think you’ll use a specific piece of machinery or appliance again, selling the item can give your business an immediate cash flow boost.
For example, let’s assume you own a coffee shop and in the last year, you’ve upgraded all of your espresso machines. You kept the old ones as a backup because they were still serviceable and you estimate their resale value to be around $10,000. That’s literally money that’s sitting on a shelf collecting dust.
If you’re considering selling equipment, remember to think about both the short- and long-term. Selling something could put money in your bank account now but it may not be efficient if you end up having to repurchase the same piece of equipment later on.
- Eliminate one unnecessary monthly expense
As a small business owner, your budget can be one of the most powerful tools you have for effective cash flow management. When you’re aware of how much you’re spending each month, it becomes easier to weed out expenses that are no longer necessary.
Trimming the fat is a simple way to quickly re-energize your cash flow. For instance, are you paying for subscription services or add-on services that you aren’t using? Are you using an expensive accounting program when a less expensive program would work just as well?
Review what you’re spending from month to month and pick one expenditure you can get rid of right away. Then, go back and take a second look to see if there are additional expenses you can whittle down—or do away with entirely.
- Consider a term loan for working capital
While the tips outlined so far can be useful, addressing cash flow issues sometimes requires a bigger solution. When you need additional funds for working capital, a term loan can help to fill the gap.
Term loans are a type of small business financing that can be used for a number of purposes, including purchasing inventory, expanding into a new location or simply covering operational expenses like payroll. Before you apply for a term loan—or explore other financing options, such as a merchant cash advance or invoice financing—take time to compare each lender’s terms. Consider the interest rate, fees and repayment terms. Ideally, the path you choose should make it easier to manage your cash flow, rather than creating additional obstacles.