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How Can A Business Improve Its Cash Flow and Why It Is Important To Manage Cash Flow

Posted by Melinda Stevenson on 7 November 2021

Cash availability is the most critical aspect of the success of any small business. This article discusses how to optimise cash flow through forecasting and other practical strategies.

Whether you started the business to earn extra money or have flexible working hours, the long-term viability of your venture relies on maintaining a positive cash flow balance. Many factors influence cash flow based on different circumstances. Cash flow is a crucial financial metric since it serves as a clear sign of business health.

When cash is readily available and the cash flow is constant, all is well with the business. However, if your outgoings suddenly increase or your incoming funds significantly reduces, you will be in a tight financial position.

Having a firm handle of cash flow enables you to position the business more effectively during challenging times. Good cash management practices allow you to quickly identify when to cut costs, address pricing difficulties, and take on additional capital when feasible.

Good cash flow is critical for seasonal businesses. These types of companies are likely to experience significant variations in cash flow due to the cyclical nature of their industry. Business owners can take several steps to maximise cash flow, flexibility, efficiency, assess possible organisational development and future growth.

How Can Small Businesses Effectively Manage Cash Flow Shortfalls?

As the organisation expands, you will need to obtain additional funding to cover the costs of extra employees, larger premises, and rising production costs. Suppose your business quickly grows and the company's expansion is unanticipated.

In that case, you risk overtrading due to a lack of working capital. The working capital is the cash you can use to meet the organisation's daily operational expenses, such as the ability to pay for increasing orders with suppliers.

During the critical period between investing in growth and realising profits, the lack of operating capital is common for organisations experiencing rapid growth.

The lack of operating capital can ruin an organisation forcing the company to shut its operations. However, there are a variety of ways for addressing short-term liquidity shortages.

How Can Small Businesses Quickly Improve Their Cash Shortages?

There are several urgent solutions for unforeseen cash shortages, including the following:

  • Recouping unpaid customer debts.
  • Raising the prices of products and services you offer.
  • Borrowing money through loan refinancing or obtaining a bank overdraft.
  • Negotiate more favourable payment conditions with suppliers, such as deferring payment in return for repeated or larger orders.
  • Negotiate more favourable payment terms with clients by offering discounts for prompt payment, promoting automated payment options to customers, or requiring customers to pay deposits in advance before providing them with products or services.
  • Assess if there are non-core business assets that you can sell to generate additional cash.
  • Utilise outsourcing services to assist with your debt collection process and ensure timely follow up of customers debts as they fall due.
  • Utilise factoring or invoice discounting services. It is where the business lends you money, collects outstanding invoices from your customers, and they can manage your company's books.

How to Implement Cost Reductions Strategies to Increase Business Liquidity?

An efficient method of enhancing the organisation's liquidity is to minimise and eliminate any unnecessary costs as follow:

  • Avoid unnecessary expenditure that drains the company's cash flow while its cash position is constrained.
  • Decide to lease or hire-purchase new buildings or machinery rather than incur further debt by purchasing it entirely.
  • Postpone any salary increases.
  • Lowering overhead costs such as substituting conference calls for business travel and in-person meetings.

How to Improve Cash Flow Management Practices and Forecasting?

The organisation needs to strengthen its cash flow management in the long run if the business is anticipating further operational expansion. By monitoring and forecasting the company's cash inflows and outflows, you can more accurately foresee cash flow gaps.

Cash flow forecasting can assist in appropriately planning for essential debt financing requirements as they arise. Once the operating capital is properly secured, you will have more time to manage other parts of your rapidly growing organisation.

How to Assess Business Financing Options Available?

If you are having difficulty enhancing the company's cash flow, a financing injection may be necessary. Consider financing options such as a short-term business loan or a bank overdraft as a possible solution.

Each business case is unique so seek the advice of a finance broker or financial advisor. Once you choose a financing option, immediately implement the necessary budgeting and regularly perform an ongoing cash flow analysis.

How Can Budgeting and Cash Flow Projections Improve Business Performance?

A budget and cash flow projection enables the organisation to monitor its performance more accurately and assess it in real-time using a business management system.

Without a budget and cash flow prediction, you will have no idea when or if you can trade your way out of a difficult cash flow situation. Suppose you do not have a budget and cash flow forecast in place. In that case, you should implement it immediately to perform the following:

  • Assess revenue, cost of goods, expenses, taxes, and cash flow which are critical in operating a profitable business.
  • Determine if the company's present business model is lucrative and provides you with the desired compensation.
  • Assess which areas of the business where you are experiencing a loss in revenue.
  • Determine the required equipment investments and whether you need to fund them by cash or debt financing.
  • Assess the techniques to utilise in boosting the company's financial performance.

How to Modify Your Business Model and Improve Cash Flow?

Once the organisation's budget and cash flow are in order, you can use several strategies to boost profitability and cash flow. The budget and cash flow management processes need to be in place to evaluate these business strategies properly.

Altering the financial projections through budgeting and cash flow forecasting will help assess achieving the organisation's projected operational goals in the medium to long term.

The primary areas of the organisation where you can achieve financial and operational improvements are as follows:

  • Increase the price of the products and services you offer by providing product bundle offers.
  • Eliminate unnecessary expenditures by cancelling magazine subscriptions that are not beneficial in growing your business.
  • Change operating systems to improve efficiencies as a time-saving initiative such as upgrading computers to a newer operating system that works much faster.
  • Implement time-saving initiatives to increase efficiencies by utilising business management tools and outsourcing services to reduce wages by avoiding employing additional full-time staff. 
  • Consider debt consolidations.
  • Make modifications to the payment terms you provide customers by reducing the period from 30 days to 14 days.
  • Ask suppliers to provide you with a longer payment term or request if you can apply for credit. If suppliers can put you on account instead of paying cash on delivery, it will reduce cash flow pressures. 

How Managing Debtors and Clients Can Improve Cash Flow?

Chasing outstanding customers' debts is a necessary process for businesses to get paid. Recognise that without cash, the company cannot exist. Do not be afraid to change the organisation's procedures to prevent slow payers from putting the company in a financially challenging position that may force you to shut the business.

Outlined below are several solutions to assist in reducing the organisation's outstanding customer debts.

  • Modify the terms of payment. If the customer's payment term is currently 30 days, change it to 15 days. By changing the payment term, customers are likely to vary when they pay your invoice based on the new payment terms you give them.
  • Consider the process of your point of sale. Instead of putting customers on account, request payment upon completing the work or pay the invoice in advance.
  • Create terms and conditions and get customers to sign them. Penalise those customers who violate them by charging them penalty rates for non-compliance.
  • Incentivise clients to pay more quickly, such as providing a 10% discount on upfront payments.
  • Arrange a contract agreement with a third party to manage outstanding customer debts. By delegating the debt collection duties to an outsourcing service provider, timely communication with clients about outstanding debts and chasing customers' debts occurs consistently.
  • Write off bad debts for the outstanding debts you cannot recover and terminate those clients. Bad paying clients are not worth the time, resources, and emotional anguish they cause.

How Managing Creditors and Suppliers Can Improve Cash Flow?

Keep in mind that each creditor your business has is a debtor to your suppliers. You must exercise caution because if you are strict with your clients, you must also be mindful of your creditors and suppliers.

The most effective strategy to bargain in this area is to speak with your creditors and suppliers and request more favourable payment terms or better prices in exchange for the following:

  • Be loyal to them.
  • Commit to purchasing at a specified level as it will benefit your financial situation once the company's cash flow improves.
  • Build an essential strategic relationship by marketing their business in exchange.

With the proper strategies and tools, improving cash flow is possible. By combining short, medium, and long-term plans for organisational improvements, a realistic budget, and a cash flow forecast, the company's cash flow position can improve fast.

Developing effective cash flow strategies can be challenging. However, having a cash flow strategy and someone to bounce off organisational ideas with always helps, such as a business advisor and advisory board.

You can speak with a business advisor or certified specialist to learn more about cash flow management and find out ways to improve it.

Why Having Effective Cash Flow Management is Important to a Business?

A good cash flow indicates both the operational performance and success of your organisation. However, unexpected changes in the market environment can always occur and cause an imbalance in the cash flow, resulting in poor management and business collapse.

The importance of having a good cash flow is especially true for small businesses, which are more susceptible to unforeseen changes to customers' market demand or a downturn in the economy.

How Can Small Businesses Mitigate the Risks of Cash Flow Shortages?

A short-term business loan can be an appropriate solution for small businesses to mitigate the risk when experiencing cash flow shortages. A small business loan can be a cost-effective and flexible method to manage cash flow problems when times are tough.

A business loan can help in maintaining a healthy company cash flow. Some key concepts are defined below to explain further how short-term business loans can help the organisation increase its capital.

Cash flow is the company's net amount of cash and cash equivalents. It is the cash flow received by the business and money going out, such as paying for its operational expenses over a specified period. The cash flow statement accounts for all cash inflows and outflows associated with business operations.

Generating sufficient cash flow for the business and optimising its long-term free cash flow allows it to create value for its stakeholders. The cash flow statement summarises the organisation's inflow and outflow of cash and cash equivalents from the business.

The cash flow statement outlines how well a company manages its cash position and raises money to meet its liabilities and cover operating expenses.

How Can a Small Business Loan Boost Cash Flow?

Maintaining a healthy cash flow should always be at the top of the business owner's priority list. A study conducted by JPMorgan Chase & Co. outlined the importance of comprehending cash flow patterns and maintaining a cash reserve. The JPMorgan research found that half of all small businesses have less than a month cash buffer.

Cash buffer days are the number of days in which a business could pay cash outflows from its cash balance if its cash inflows ceased. According to JPMorgan, cash buffer days are a critical sign of a small organisation's financial viability. They noted that many small businesses might be unable to maintain operations if they experience a month-long decline in cash inflows due to an economic slowdown or other adverse events.

However, if you have not established a cash reserve, you can enhance the company's cash flow with a short-term small business loan. Seasonal fluctuations are a natural part of business operations. No matter how well you plan for the company's operations, you may run into financial difficulties during the different stages of the organisation's growth.

The financial challenges small businesses can experience may potentially result in the organisation's closure in the worst-case situation. A short-term business loan can assist in repaying suppliers, operational costs, and employee salaries, all of which are necessary to keep the company operating.

When running a business, numerous unforeseen circumstances necessitate immediate cash. The company must always plan for probable financial losses and business issues and establish a cash flow forecast.

A small business loan may be a viable option when a company has cash flow difficulties. It serves as an emergency backup that allows the organisation to meet its operating expenses.

When managed appropriately, a short-term small business loan can help in the following ways:

  • Supplement the organisation's cash flow.
  • Allows the company to deal with unexpected projects.
  • Provides the organisation to meet excess market demand.
  • It serves as a stop-gap when sales decline due to the seasonality of the business cycle.
  • Appropriately address other business challenges as particular necessities arise.

Short-term small business loans are an excellent option for those new to the market, those having difficulties obtaining credit from traditional financial lenders, or those ineligible for standard term bank loans.

Utilising short-term small business loans helps fast-track in achieving your company's objectives. Since you can receive the funds faster within 24 hours as offered by our small business loans partner, Capify, compared to the traditional bank loans. Having a small business loan also helps improve your credit score and build up a good track record regarding borrowing history.

It also helps you qualify for other types of funding, such as a traditional bank loan. It is essential to implement strategic cash flow management practices in achieving a favourable return on investment from your borrowings.

Growth and expansion become critical in different stages of a business life cycle. You might be considering expanding your business by purchasing a store in a more upmarket area, a new warehouse, or a larger building or office.

The business expansion costs are substantial and necessitate additional resources. A small business loan can provide the financing you need to assist in achieving the company's strategic objectives in the immediate future.

Short-term small business loans are affordable and convenient, allowing you to repay them on time. Although the capital cost of a short-term small business loan looks higher than long-term business lending, such as bank loans, it has its advantages.

Short-term small business loans allow you to receive funds immediately and have flexible payment terms. By learning how to manage cash flow effectively, you can be in a much better position when applying for a small business loan.

The company's operational activities must run efficiently to achieve maximum returns from the small business loan funding you receive.

Do You Need a Cash Flow Boost Fast?

As the various states in Australia are re-opening, our small business loan provider partner, Capify, is assisting organisations to get back to business. There are two deals on offer to celebrate Freedom Day with Capify, as outlined below.

There is increasing demand from small to medium-sized organisations looking for capital which is picking up to unprecedented levels as the Australian government business incentives end.

Small to medium-sized organisations need capital to re-hire employees, re-stock inventories, and re-market their businesses. Capify is committed to helping small and medium-sized enterprises receive the capital cash injection they need as quickly as 24 hours to fund their business operations.

Capify Freedom Day Small Business Loan Offer

Do You Need a Cash Injection for Your Small Business?

Outlined below are two ways our small business loan provider, Capify, can help small to medium-sized companies that need a cash injection to re-open their business to celebrate Freedom Day.

Freedom Day Offer #1 - Capify Restart Loan Programme

Our small business loan partner, Capify, is funding businesses impacted during the lockdown, even those closed and without any income. Capify is giving small to medium-sized companies a 50% discount on their first entire month's worth of payments to help them get back on their feet.

The world is getting back to business. NSW is open again, and business confidence has already spiked, shaking off the lockdown induced downturn. All that pent up customer demand is about to become a flood. Are you ready to capitalise on the boom time over the next twelve months?

Suppose the lockdown heavily impacted your business turnover. You are struggling to access funds as you do not meet other lenders' minimum criteria. In that case, Capify Restart Loan can give you the jumpstart you need without adding additional stress to your cash flow^ by offering the following:

  • Flexible repayment options.
  • Reduced payments in the first month to assist recovering businesses.
  • Higher approval rates.


Click on the button below to claim your offer.


Claim Your Capify Offer


^ Terms & conditions and Capify Restart Loan credit criteria apply.

Freedom Day Offer #2 - Capify Freedom Day Cashback Offer

Massive vaccination blitz in NSW sees the state celebrating 'Freedom Day'. Is your organisation ready to hit the ground running, or do you need a cash injection to get a kickstart? 

Capify can help support your business by boosting your cash flow with the Freedom Day Cash Back offer. Get funded for $30,000 or more before 30th November 2021, and you will receive a $1,000 EFTPOS gift card^.

Use the funds to purchase stock, invest in marketing, hire staff or any business purpose to get your business ready for Freedom Day.


Claim your offer by clicking the button below to get started.


Claim Your Offer Capify



^ Subject to Capify's standard credit approval criteria and offer's terms and conditions outlined below.

Terms and Conditions

This offer is available only to new customers that have been approved and funded between the promotional period of 1st October 2021 to 30th November 2021.

Customers who signed an agreement for a loan amount of $30,000 or more, and received funds in their bank account during the promotional period, will receive a gift card worth up to $1,000.

The gift cards are delivered within two weeks after the offer has ended on 30th November 2021. You cannot use this offer in conjunction with any other promotional offer.

Capify can withdraw the offer without notice. Capify's standard credit criteria and Terms and Conditions apply. The promoter is Capify Australia Pty Ltd (ABN 38 630 469 117), trading as Capify, Level 7, 32 Phillip Street, Parramatta NSW 2150. Phone 1300 226 597.

The lending specialist at Capify can help you secure a small business loan that suits your needs. Apply for a small business loan and receive your funds within 24 hours for eligible applicants. 

Click on the button below to receive a call back from a lending expert to get started.


Claim Offer Capify


Do You Want a Guide to Improve Your Company's Profitability?

The book, Accounting For The Numberphobic: A Survival Guide For Small Business Owners, published by Dawn Fotopulos, includes practical action steps that will empower you to build your business on the path to profitability in no time.

You cannot make responsible decisions about your organisation if you do not understand the financial measurements that indicate the health of your business. This book takes away the fear of looking at the numbers in your business and helps you read financial statements and reports like a pro.




Source: Amazon


This article does not constitute legal, business, financial, or accounting advice, so all readers must seek assistance from qualified professionals to discuss their specific circumstances. Dynamic Zenergy is Capify's Small Business Affiliate Partner. When you use our affiliate link to purchase a product, we may receive a commission at no additional cost to you.

Author:Melinda Stevenson
About: Dynamic Zenergy provides specialist business advisory consulting services. Our mission is to accelerate your business growth by increasing your revenue streams and profitability. We help you in systemising, automating and improving processes by leveraging business management software and outsourcing services so that your organisation can thrive and to maximise the return when exiting/selling the business.
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