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11 CASH FLOW MANAGEMENT Strategies for small businesses that are working in 2024

11 CASH FLOW MANAGEMENT Strategies for small businesses that are working in 2024

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From my experience of working with small businesses based in the UK as their accountant and cash flow coach, one of the biggest challenges of a small business owner is to ensure having positive cash flow month on month basis.

From what I have seen, even profitable companies experience cash flow problems when debts are due before receivables come in. This scenario describes a classic cash flow problem that can lead to bigger problems, like making payroll and being put in a situation where creditworthiness is brought into question. 

To keep cash flow at a manageable rate, it is wise to consider and implement cash flow management strategies that are working right now that tackles these issues before threatening your business.

Let’s go through them in detail. 

Before you do that, you might be thinking, why should you trust me ?

As a Fellow Chartered Certified Accountant (FCCA) and Cash Flow Specialist with over two decades of experience, I have assisted hundreds of clients in managing cash flow across diverse sectors such as dental practices, retail, marketing agencies, fine arts, and e-commerce, with annual revenues ranging from £40k to £53.8m.

I have been featured in leading media sites like Independent and global brands like QuickBooks Online,  Zoho, and Float app to explain my concepts, methods and results for my clients.

I am the founder of Hungry Cash Flow software and the creator of The Cash Flow Hub- The world’s most comprehensive cash flow resource online. I serve my clients through my consulting company, Hungry Cash Flow Ltd.

I am sharing these credentials  to make you feel comfortable that you are learning from someone who does this for a living all day, every day.

Let’s dive in.

11 Strategies To Improve Cash Flow Management

CASH FLOW MANAGEMENT 

1. Leasing Rather than Purchasing 

Lease vs buy is one of the common questions I get often who not only affects cash flow but also your taxes.

Recently, one of my dental practice client based near Portsmouth doing £750k patient income business, wanted to buy an electric car as I told him about the tax benefits of electric vs petrol.

Then his further question was should he lease or buy?

Although there are many factors that affect which one to choose, categorically from cash point of view, he chose the lease option as the monthly instalments was less.

2. Discounts for Early Payment 

Have you heard the phrase- Money makes more money?

Offering discounts to customers who pay their bills ahead of time can have a powerful impact on relative cash flow, creating a win/win for you and your clients. 

This only works, if your business is constantly generating positive cash flow and you have excess cash on hand to mobilze cash better.

I advised a retail client to use existing excess cash in the business to pay the direct vendors early and negotiate 2-5% early payment discount. 

Last year only he saved £68,327.38 from cash going out and as well as it has direct positive impact on bottom line-profit.

3. Cover Yourself with Client Credit Checks  

If a prospective client prefers not to pay by corporate check (or cash), it is recommended that you conduct a credit check before making any agreements with the customer. If the client comes to you with poor credit, you can assume the payments will be coming in late. Late payments will your business cash flow.  

This happened to of my client, who started to work with his client on a big project of £350k. After working for two and half months, my client wasn’t getting paid.  This was because his client had previous cash flow problems. So there was a massive delay in getting paid. Profit is good but cash flow is crucial for financial health and sustainability.

4.Create or Join a Buying Cooperative

This gives you a power-in-numbers advantage when you join with other companies wanting to pool their cash to negotiate for lower pricing with suppliers. This tactic mimics the strength experienced by large firms that buy in bulk and enjoy the benefit of big discounts.

This cash flow management strategy is working well with dental practice clients.  As a group of dental practices, they buy materials and  laboratories from a specific supplier at a discounted rate.

5.Audit Your Inventory

List the goods you have been purchasing that aren’t moving up to pace with your other products. These slow movers can tie up your cash and cripple your cash flow. Instead of buying more of what doesn’t sell, unload it out of inventory, even if that means you need to sell it at a discount. If you have an emotional tie to these underperforming products, be objective about what you need to do rather than being subject to it.

I advised one of my retail client selling luxury furniture, as soon as  the monthly stock count figures are adjusted in the balance sheet and P&L, he should review slow moving  stock items and place them in the clearance section of the website. 

It is better to have cash in the bank account instead of stock items which could further diminish in value.

This is important. Write this down.

Inventory management = better cash management

If you want to manage cash better, you have to manage inventory better. 

If you are no sure, how to do this, check out how to prevent inventory from consuming cash flow masterclass I delivered to Zoho 

6. Invoice factoring

Invoice factoring is an option to manage cash flow to pay the bills that are due for which you don’t have sufficient cash to cover.

From what I have seen especially for a new business, cash outflows can be high when you invest in various aspects of the business. It can significantly impact working capital to keep the business running. 

Online accounting software such as QuickBooks can provide you with real-time information on cash inflow and cash outflows in your business so that you can make a decision like- should you  need to go for invoice factoring to cover for short-term cash shortfall.

I work with few invoice factoring companies that help my clients to release cash based on usually 80% of the invoice value upfront, taking off pressure to run business operations smoothly.

7. Handle Accounts Receivable

You know very well , how crucial it is for you to get paid on time by your customers.  To do this, you need a complete handle on accounts receivable from invoicing to follow up by sending statements of what they owe.

Make sure your invoices should be clear and easy to manage for the recipients. Include the due date in a few places (consider bold type) — and make sure the due date appears at the top of the invoice, above the first fold, and on the detachable payment slip on the bottom. State the payment types accepted (preferably with logo artwork for each payment processor) clearly and mention any late payment fees. Bookkeeping online accounting software such as QuickBooks is one of the apps you can use for invoicing process.

8. Use Electronic Payments 

 When you pay electronically, you can wait until the morning of the due date to make payment. This buying of time can improve your cash flow. If you use a business credit card that offers a grace period (some as long as 21 days), this will go a long way in increasing your cash flow. You may even get cashback. But don’t let debt pile up.

9. Get on top of Accounts Payable

Getting on top of accounts payable is one of the most important part of cash flow management. 

One of my clients who provide energy services to UK homes and corporates, the main thing she wants to know on a weekly basis is who she is paying, how much and have they got enough cash to cover for it.

What I recommend you to do is, keep friendly, regular communications with suppliers, you will have a much better chance of getting improved terms. Offer suppliers early payments if they’re willing to give you a discount. Mastering the art of negotiation is a critical part of doing business and can help you convince suppliers to offer you the optimal deal.

10. Keep High-Interest Savings Accounts

 This may provide you with liquidity as you grow your cash position. The best high-yield savings accounts offer interest rates as much as 25-times higher than other accounts, earning you more with the money you have in savings.

11. Consider Increasing Your Prices 

 This scares some business owners concerned it will lead to reduced sales but experimenting with pricing to land on the perfect number (how high customers will go) will always be an unanswered question until you experiment.

Here’s what I advise you to do.

Keep a Sensible and Progressive Business Plan. Vibrant cash flow results from operations being run smoothly and efficiently. Ensure that you’re working with all elements — marketing, product and service development, and new customer acquisition regularly to help you anticipate trends and challenges before they impact your profitability.

Role of Cash Flow Statement

Best Practices To Follow for Managing Cash Flow

From my experience of working with business owners across different sectors, sizes and scale of the business over the years, in order to set up the best practices to manage cash flow, you need to have two things on a regular basis.

  1. Cash Flow Statement
  2. Cash Flow Forecast

The Role of Cash Flow Statement

If you want to get a handle on your business’s cash flow, I recommend preparing a cash flow statement and updating it every month. It keeps track of cash inflow and cash outflows. You can analyse cash inflow by who is paying upfront, who is on invoice factoring terms, and who is paying by instalments to have cash flow clarity whether you have a good cash flow. Also, by analysing the cash flow statement from the cash outflows side, you can regularly determine how much costs you are paying as operating expenses. 

The Role Of Cash Flow forecast

If you want to go further ahead, in addition to a cash flow statement, you also want to have a cash flow forecast in place. Having a cash flow forecast allows you to predict your future cash flow position on a real-time basis. This will help you further whether you should consider invoice finance, line of credit, business loan or even offering discounts to customers to ensure your working capital is healthy. 

Your Next Step

If you are unsure about your current cash flow situation and want to find out cash flow health, this cash flow quiz will help you raise your cash flow self-awareness. The Cashflow quiz will help you identify the causes of cash flow management problems in your small business and ways you can improve cash flow. 

How healthy is your cash flow? Take the quiz and find out in less than 60 seconds.

Take the Quiz

Curious to find out how healthy your cash flow is? Take this quiz. In less than 60 secs, it will show your situation and the steps you can take to improve.

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Shishir Khadka, qualified as a chartered certified accountant in 2009. He is the creator of cashflow hub– the world’s most comprehensive cash flow resource online and is one of the UK’s leading cash flow specialist who helps busy business owners and entrepreneurs generate more profit and create consistent positive cash flow without over relying on getting new sales.

He has delivered a masterclass to a global software Zoho’s audience to create consistent cash flow. He has written articles for floatapp– one of the leading cash flow software and has also been featured in the major publications such as Independent. He has been sharing his learning and insights on his youtube channel.

He wrote about his learnings from helping an e-commerce client scaled the business cash flow positive from £500k to £1.6m in four years in “The Three Key Obstacles to Faster Growth: How You Can Overcome Them Using Cloud Accounting.

In his career spanning 18 years as the cash flow specialist, he has helped businesses of all sizes, ranging from £40K to £40M.

11 CASH FLOW MANAGEMENT Strategies for small businesses that are working in 2024

By Shishir Khadka, FCCA.