Strong cash flow is an essential part of a successful small business. In other words, you need to have enough money coming in and out of your business over a given time to keep it running smoothly. 

Research shows that poor cash flow is one of the top reasons startups fail. So, to prepare your business for a promising future, you might want to consider how you can improve your cash flow and overall financial health.

But where might you start? There are plenty of tried and tested cash flow tips for small businesses, and we can offer a few.  

This guide lists effective cash flow tips for small businesses, including:

  • Tracking and forecasting your cash flow
  • Converting sales into cash 
  • Considering your business expenses 
  • Building up a cash fund 
  • Using accounting tools 

Why you need strong cash flow in business

Your business needs to earn money to succeed. But you must also spend money to make that happen. Your cash flow is the cycle of your earnings and expenses running in and out of your operations, specifically in cash form

Concrete cash is essential to covering expenses necessary to running your business. To do this, it’s not only important to earn sales, but to convert those sales into cash. 

Offering credit transactions or a longer lead time on invoices could prolong the time between a sale and receiving the money from that sale. If you don’t manage this well, your cash flow may not cover the ongoing expenses. 

These financial struggles can be stressful for you, but they can make you look less professional and reliable. Ultimately, it’ll be challenging to properly serve customers and grow your business.

See also: What are the effects of poor cash flow in business?

Tried and tested cash flow tips for small business 

There are plenty of effective tactics to help you sustain your cash flow. Let’s go over a few of the best. 

Tracking and forecast your cash flow 

It’s far easier to improve your cash flow if you understand its current state. Start by creating a cash flow statement for the month, quarter, or year. Compiling this information allows you to spot trends and potential issues. 

Forecasting your cash flow helps you predict and prepare for future numbers. As a result, you can plan for times with lower cash flow and minimise unplanned or wasteful expenses.

On top of this, it helps you understand what cash flow you need to run your business effectively and create realistic cash flow goals

Converting sales into cash quickly

You may earn sufficient sales yet not see that cash as quickly as you’d like. So, it’s important to create a strategy to improve your conversion time and speed up the money entering your business. 

First, think about shortening your invoice due date for customers. For example, you might give people 30 days to complete an invoice. But, if you shorten it to 14 days, cash will come in twice as quickly.  

Additionally, try developing a system to remind customers of their invoices and follow up on late payments. Staying on top of these payments can increase the frequency to help you earn cash more efficiently.

If you make more minor sales, you could also promote cash payments to avoid a delay between sales and payment. Doing so will increase the immediate cash entering your business.

Debt factoring is another option. In this approach, you outsource invoicing to convert them to cash earlier as the factoring company forwards it to you. Still, you are taking on short term debts. It’s essential to have reliable customers. 

Considering your business expenses

Just like you can increase the speed at which you bring cash into your business, you can decrease the money leaving it. 

Try assessing your business expenses to cut costs and reduce cash outflow. For example, you could cancel unhelpful subscriptions or find more affordable options for necessary ongoing costs.

When you pay regular expenses, consider submitting these payments on the due date and no earlier. This approach prolongs your cash flow instead of spending cash before you need to. 

Building up a cash fund 

If you’re entirely dependent on your month-to-month cash flow, it might be stressful when inevitable fluctuations make it difficult to cover costs. To avoid this risk, consider creating a backup plan. 

You might want to set aside a small amount of cash each month, such as 1-5% of your earnings, so you have a fund to help cover costs. Doing so improves the financial health of your business and takes off some of the pressure. 

With this fund, the survival of your business isn’t dependent on how well you manage cash flow each month. You’ll need to improve your cash flow, so you have the extra cash to set aside to build up that fund.  

Using accounting tools 

As you use these tips to improve the cash flow of your business, look to tools that can help you track your success. 

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. 

The app offers automatic ongoing cash flow insights to see how well you maintain your money. 

Save yourself hours of accounting admin so you can focus on growing your business. 

Start your three-month free trial today

Improve your cash flow for a successful small business 

With these cash flow tips for small businesses, you can earn what you work for and better cover expenses to smoothly run your operations. Just remember, try to: 

  • Stay on top of and predict your cash flow 
  • Efficiently convert your sales into concrete earnings
  • Cut and effectively manage expenses  
  • Create a backup cash fund
  • Use automated accounting tools to track cash flow

The more sales you make, the more cash you can bring into your business. To improve this, you might want to check out how to set sales goals.