How To Improve Business Cash Flow

Octavia Conner

By Octavia Conner

Cash is your business's superpower. Therefore your focus should be to improve business cash flow consistently. Cash flow is simply the movement of money in and out of your business at any given period.

Tracking the movement of cash flow is the most critical metric in business. Without enough cash flow, you will be unable to complete the daily operations of the business and expand the company. Many business owners make the mistake of making decisions based on their bank balance; however, this number alone will not provide insight into the reasons behind money leakage, pricing mistakes, and future cash balances. For example, Susie started the month with $20,000. She made the decision based on her bank balance to pay $15,000 in bills. As of two days later, Susie logged into your account, and it had a balance of negative $10,000. Susie's mistake? She did not factor the business's payroll total set to be withdrawn two days after the beginning of each month.

Virtual CFO Services

The secret to achieving longevity in business is to remain cash flow positive at all times. Analyzing your cash flow will provide insight on if your business bank accounts are growing or shrinking over time. You want to be aware of the amount of cash you must have on hand in order to cover your operational expenses.


Each Employee Should Help Maintain A Positive Cash Flow

As the business owner, you must keep a laser view on the company's cash flow cycle. The company's financial team should complete a cash flow forecast and maintain a reliable financial management system for the business. The company's key sales representative should spend over 90% of their time of revenue-generating activities, and all team members should be aware of the company's budget guidelines and key performance indicators. By operating in this manner, it ensures that all employees are mindful of the importance of maintaining positive cash flow for the business at all times. Regularly scheduled meetings should be conducted to discuss the company's growth and financial position. After all, without enough cash flow, no one will receive a paycheck.


Immediate Ways To Improve Cash Flow

There are several ways the business's cash flow can improve immediately. For now, I will cover three key strategies below.

  1. Have customers pay upfront. Instead of waiting until you have provided the services or products to your customers, have them pay the full amount (or half) before you begin working. By changing your payment terms, this enables the business to maintain positive cash flow while in operations.
  2. Change invoicing terms to "due upon receipt." Most businesses offer to invoice customers with payment terms of due in 30 days. There are several adverse cash flow effects to providing a 30-day payment term;
    1-- the business must continue to operate (decreasing cash flow) while they wait for the customer to pay,
    2 --if the customer is late, 30 days could turn into 45 even 90 days (further decreasing cash flow),
    3 --most 30-day invoices are not paid until 45 days or later, leaving the business with a snowball effect of negative cash flow.
  3. Offer recurring services instead of one-off services. Instead of serving a customer one time, determine how the business can turn that one payment into monthly payments. For example, not only do we provide bookkeeping clean-up services, but once we have completed the service, we always offer the client a monthly virtual bookkeeping package to ensure that they never have messy books again.


As the common saying goes: Cash is King. As I like to say: Cash Is Your Business's Superpower. 

Without enough positive cash flow you will find it difficult to scale your company to the next level. In addition to a financial management system, have your Virtual CFO create a cash flow forecast. A cash flow forecast will help you predict future cash shortages and prevent or prepare for them, in advance.