15 Ways for Small Businesses to Boost Cash Flow

Small businesses are important to the U.S. economy.  They employ more than half of the workforce and have created about 65% of all jobs since 1965.  For additional perspective, consider the following small business statistics:

• As of 2016, there were 28.8 million small businesses, which accounted for 99.7% of all U.S. businesses. (Source: SBA Gov 2016)

• The greatest challenge to small business growth and survival is economic uncertainty, followed closely by lower consumer spending and regulatory burdens. (Source: (NSBA) National Small Business Association 2016)

• 50% of small businesses will survive 5 years or more. Approximately one-third will survive 10 years or more.  (Source: Bureau of Labor Statistics 2016)

Small businesses often struggle with cash flow.  Many small businesses actually anticipated large profits in the year they had to close their doors — they didn’t have enough cash coming in to cover their expenses before they had a chance to realize their not-so-distant opportunities.   While improving cash flow through small business loans can be a good option for many small businesses, it isn’t a solution that is available to everyone.

Big banks only approved around 24.1% of small business loans. Smaller banks have a much higher approval rate of around 48.9%. Alternative Lenders approved 58.2% of loan requests. (Source: Biz2Credit 2017).

In the following we’ll review 15 ways to boost small business cash flow (which are great tips for all small businesses).

Cash is King

Business is a game of revenue, profits and expenditures, and here are four ways a small business can increase cash on hand: Get paid faster, earn more, pay slower and spend less.

The good news is that there are a myriad of strategies you can implement to improve your cash flow that aligns with each of these opportunities.

Speed Up Receipt of Cash

Any steps you can take to shorten your receivables will boost your cash flow.  Since many small businesses land in the trap of playing banker to their larger customers, it’s important to think through your receivable strategies.

• #1 - Send out invoices immediately after the delivery of goods or services.

• #2 - Shorten your payment terms.  If you offer net 60 terms, try net 30.  If you offer net 10, try payable upon receipt.

• #3 - Set up ways for customers to pay you on the spot by accepting checks, credit cards, or electronic payments.

• #4 - Offer small discounts to customers who pay early and charge a penalty to those who pay late.

• #5 - Set a schedule for actively following up on overdue invoices.  The squeaky wheel gets oiled and sometimes, invoices slip through the cracks of the desks they land on.

• #6 - Get the job done ahead of schedule.  If your business gets paid when work is completed, it makes sense to finish your work early so you can get paid sooner.

• #7 - Transform your receivables into cash with factoring or purchase order funding.  While invoice factoring will cost you a portion of what you would have collected on your receivables, it allows for an immediate cash influx.  Purchase order funding is charged interest.

• #8 - Offer subscription-based payment options that allow customers to gain discounts for paying for a year’s worth of products or services in advance.  This is a win-win for your customer and your cash flow since you customers save money on a package of goods or services they already use and you get the cash you need upfront.

Earn More with the Same Sales

Small businesses can earn more without selling more.  Think strategically about evaluating your pricing strategies and managing your cash more effectively.

• #9 - Update your prices to align with your target profit margin.  If your costs have increased since you established your pricing, it may be time to evaluate a price increase or implementing surcharges to accommodate changes in business methods.

• #10 - Establish a high-interest savings or money market account to earn interest on your cash on hand.  The flexibility of these accounts will allow you to withdraw the money whenever you need to.

• #11 - Secure a business credit card with a cash-back feature.  Small businesses can earn a substantial amount back with cards earning 1-6% back on various products and services.  Nav offers some options for consideration.

Slow Down Outgoing Cash

Maintaining a healthy cash flow is supported by slowing down outgoing cash.  Implementing smart strategies to hold on to your cash as long as possible can help you during times of slow sales.

• #12 - Use your business credit card to pay suppliers and make purchases.  This allows you to take advantage of the 20-30 day grace period between making a purchase and needing to pay for it.  It’s important to note that it’s best to pay off the balance of your card each month if possible to avoid interest fees.

• #13 - Unless you are offered a discount for paying early, don’t send your payment until it is due.  Whether it be supplier invoices or credit card balances, there is no reason to pay early unless you are getting the benefit of an early-pay discount, and even then, you should evaluate if the discount is worth the earlier departure of your cash.

• #14 - Tie sales commissions to the receipt of payment for sales.   This helps cash flow in two ways; first it allows your small business to collect the funds before paying the sales commission, and secondly, it helps encourage your sales team to be part of the collections process.

Control Spending

While controlling spending seems like a no-brainer, many small businesses struggle with evaluating ways to control spending on an ongoing basis.

• #15 - On a bi-annual basis, seek ways to reduce overhead or negotiate better terms and rates for every outgoing expense.

  • Run a list of every outgoing payment made for the preceding 6 months (note: review your credit card statements too).

  • Evaluate if you really need the subscription based services that you’re paying for and determine if less expensive alternatives exist.

  • Can you save money by offering reusable mugs to employees instead of disposable ones?

  • Would two-sided printing for internal documents save on paper reams?

  • Can you get extended payment terms or discounts for items you purchase regularly?

Final Thoughts

Running a small business isn’t easy, but it can be very rewarding.  By implementing some of the above strategies, small businesses can improve their cash flow.   In addition, loans and credit cards can also offer cash flow relief when they are used intelligently. The key to financial success is to keep an eye on all opportunities to improve ongoing cash flow so your small business can weather the highs and lows of cash without the need to take on burdensome debt.