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How to Free Up Cash Flow - 10 Top Tips

By Jamie Ward, CPA

A positive flow of cash for small businesses often indicates that sales are good, expenses are under control, and that overall business health is positive. 

Increasing that already positive cash flow takes the business a step further, by providing an extra buffer against any challenges that lie ahead. Increased competition, rising costs, and declining sales are all contributing to the difficult business environment currently being experienced globally by businesses of all sizes in all industries. Extra cash is an antidote to almost all challenges being experienced and will counteract future trends moving in a negative direction. 

There are several things you can do to boost your bottom line, starting today. These tips can increase cash inflows and reduce cash outflows to improve your financial position by providing greater stability during this increasingly difficult economic time.

10 Top CPA Tips to Free Up Cash Flow

1. Increase sales income opportunities; set higher sales goals or plan for marketing promotions

It may seem simplistic and even difficult to grasp at this time, but it is possible to increase sales. Opportunities are everywhere at all points in the economic cycle.

Setting a goal is the first step to making this happen. Take your current sales figure and increase it by a realistic amount. Then write out ways to make that happen by brainstorming each and every possibility that comes to mind. 

There are no “silly” answers here and usually, the best ones appear after the obvious ones have already been written down. Once a list has been made, take the top 5 and plan some marketing promotions. You will see a difference.

2. Increase pricing; identify inventory or service prices that might be too low

It’s very common for businesses to start slashing prices when the economy starts slowing down. That’s a natural reaction to the overall decreased income being experienced on average by the general population.

The truth, however, is that not everyone’s income is decreasing. With the majority of businesses lowering prices to compete for the lower end of the market, the upper end is still left with demands for top quality goods and services. Identify any product or service that may be priced too low and don’t be afraid to ask for its true value.

3. Ensure payments from customers; offer discounts for customers who pay for the full year in advance or set up automatic payments

Part of the equation for freeing up cash flow involves making sure accounts receivable is collected. Customers who pay for a full year in advance or that use automatic payments should be rewarded with discounts, if possible. 

Cash flow from uncollectible accounts can be freed up through invoice factoring - the selling off of accounts receivable to a third party at a discount. This is usually the last resort for some businesses, as the discount is substantial and is usually done in an emergency situation to fulfill any immediate cash needs.

4. Schedule vendor payments so they’re most favorable for your business; take advantage of early payment discounts

On the opposite end of the cash flow equation is the money going out. An easy way to increase your cash flow is to leverage discounts for payments made before the due date. Besides improving your credit score, these reductions can make a significant difference over time and substantially improve cash flow over the long term.

5. Cut expenses; Look at existing contracts or subscriptions and identify unnecessary services or fees

When times are lean, many individuals immediately improve their personal cash flow by slashing expenses for goods and services they don’t need. It’s often the first line of defense when the economy slows down and can free up extra cash straight away.

In the same vein, a business owner can improve monthly cash flow immediately by eliminating any unnecessary subscriptions for products or services that are rarely used.  Accordingly, there may be some that are indeed useful that perhaps have a better rate when renewed on a yearly basis rather than a monthly payment. Some services may even offer a small business discount for a multi-year subscription.

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6. Improve inventory; liquidate items that aren’t selling to make room for inventory with a higher sales turnover

An effective way to improve business cash flow is to increase operational efficiency by improving inventory.

Some items either have a smaller margin or don’t match the sales performance of products with a higher turnover. Free up cash flow fast by identifying what items have a low sales turnover and liquidate them. That way, you can make room for inventory with a higher sales turnover rate that will improve cash inflows over time through improved inventory efficiency.

7. Find an accounting software or system (QuickBooks) that helps you send out invoices on time and follow-up with invoice reminders

Software like QuickBooks is a powerful way to save money and time for businesses of all sizes and types. Besides making small business accounting easier, accounting software can help streamline the invoicing process by providing reminders for sending out invoices on time and following up with customers that delay their payments. 

Accounting software can also help small businesses leverage payment discounts by providing alerts before payments are due along with providing many integrated tools that can increase operational efficiency.

8. Find a cash-back business credit card; use it carefully to earn cash-back on your expenses

Cash-back business credit cards with a competitive interest rate can offer a massive upside for businesses - especially those that pay the balance on time and never accrue any interest charges.

Perks offered by the major companies include sign-up bonuses and earnings rates on purchases that can add up substantially over time. Other perks include free cards for employees, car rental coverage (be sure to check the terms and conditions), and reduced/waived foreign transaction fees. 

9. Find a high-yield business savings account to earn more on saved money

Businesses with healthy sales and substantial profit margins can benefit from surplus cash by depositing it into a high-yield business savings account. 

Despite interest rates hitting the floor in recent years, high-interest rate business savings accounts do indeed exist - some with introductory rates over 2%. Cash sitting around in low-interest checking accounts is wasted capital when it could be invested in an account with a better rate. 

10. If needed, identify a debt relief or refinancing plan

Businesses in significant debt that are paying very high-interest rates can benefit from a debt relief plan. These often provide avenues that make debt manageable by reducing or refinancing any amounts owed in order to make it easier to repay. 

Debt relief can take on many forms that include forgiving part of the principal amount, renegotiating the interest rate, or through debt consolidation. 

Besides making the debt more manageable, many debt relief plans can significantly reduce debt-related costs that can increase cash flow over the short and long term.

Make a Plan to Improve Cash Flow

Cash flow is a key determining factor that can either make or break a small business. When there’s more money coming in than going out, everything operates much more efficiently and the business outlook is overwhelmingly more positive.

When cash outflows exceed inflows it can be like a leak in a boat that gets worse over time. The right accounting firm can provide the expertise needed to improve cash flow in ways that are tailored to your business. 

Contact us today for a free consultation on all the ways we can get your cash flowing in the right direction.

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