Improving your cash flow will help ensure that your business has the funds it needs to stay in business. While there are many ways to boost cash flow, following these five steps will help you reach your goal quickly and easily.
Create Cash Flow Projections
Before you can start improving your cash flow, you need to know where your business stands financially. Creating a cash flow projection is a great place to start.
If you use QuickBooks, you can use cash flow software for QuickBooks for this step. The software will use data from your accounting software to automatically create projections that are accurate and up to date.
Take a close look at your projection to find any cash flow dips in the future. When you can identify potential cash dips, you can take steps now to overcome them, such as seeking additional financing, cutting expenses, changing the timing of major spending or asking suppliers for a different payment arrangement.
Typically, businesses create cash flow projections on a monthly basis, but you can also create them for more extended periods of time for better financial planning.
Once you have your projections, you can take more steps to get a business cash flow boost.
Automation can boost your cash flow significantly if you use it properly. Often, one of the biggest problems with cash flow is getting clients to pay in a timely manner.
With automation, you can:
• Send invoices automatically as soon as the work is complete
• Send reminders automatically to push slow-paying clients to pay their bill
• Set alerts to let you know when you may run out of cash before your next infusion
Automating tasks such as these can help accelerate your cash inflows and give you some time to avert a cash flow disaster if your business is running low on reserves.
Watch The Numbers
Your accounting software provides valuable metrics that you can use to optimize your cash flow management. Keep an eye on these metrics.
Make sure that you’re comparing your actual and projected cash inflows and outflows regularly. Doing so will allow you to adjust your forecast as needed to improve accuracy and reliability.
Also, consider customizing your software or spreadsheet to provide key information at a glance, such as your cash on hand, gross profit, cash conversion cycle and more.
Speed Up Cash Inflows
One of the most effective ways to boost your cash flow is to speed up your cash inflows. The quicker you can get money flowing into your business, the less likely you are to rely on lines of credit to tide you over until your next infusion.
There are several ways to speed up cash inflows:
• Use mobile accounting apps to bill customers right away.
• Send invoices directly from your accounting software via email.
• Check your accounts receivable regularly and send reminders to clients who are behind on their invoices.
• Be smart about inventory management. Optimizing inventory levels will free up cash that’s held up in stock while also ensuring that you never run out of inventory.
When checking your accounts receivable, make sure that you’re calculating the days receivable outstanding for each client and using that information to create more accurate cash flow forecasts.
Slow Down Cash Outflows
Speeding up cash inflows can give you an immediate cash flow boost – as long as that cash isn’t moving out of your business as quickly as it came in.
Slowing down your cash outflows will help keep more of that cash in your reserves. Here’s how you can achieve that:
• Use your accounting software to track your bills and avoid late fees and interest.
• Avoid paying your bills too early. You don’t want to be late paying your bills, but waiting until the due date or just before it can help keep more cash in your reserves.
• Cut back on unnecessary expenses.
Taking steps to slow the outflow of cash is just as important as increasing your cash inflows, so make sure that you’re prioritizing this step.
Follow these five steps to boost your cash flow using software. The goal is to increase your cash inflows and reduce or slow your outflows to keep your cash in your business bank account in between payments.