News

10 tips for maintaining and managing positive cash flow

Author

Francesca

Read by

609 people

Date

May 1, 2023

Maintaining and managing good cash flow is essential for business success — especially if you’re an SME. With positive cash flow you’ll weather financial storms more easily and be in a better position to take on new opportunities when they come.  

Here’s how to get your cash flowing again. 

Why is positive cash flow important?

Small businesses that maintain and manage good cash flow consistently are more likely to succeed than those that don’t. Being cash flow positive means your business has more money coming in than going out.  

Having cash on hand puts your business in a stronger financial position. Positive cash flow allows your business to invest in growth opportunities, pay bills on time, and take advantage of unexpected opportunities as they come.  

Ten tips for maintaining positive cash flow

Positive cash flow doesn’t just happen. To increase your cash flow, you’ll need to take a deep dive into your business’ finances and understand where your money is going. These ten tips will help you manage and maintain a positive cash flow. 

1. Keep a properly structured balance sheet 

A properly structured balance sheet is essential for managing cash flow. It should include all the incomings and outgoings of your business, from inventory and debts to interest and assets. Knowing your business’s balance sheet back to front is vital in managing cash flow and budgeting.  

Balance sheets are great for determining risk. With an accurate balance sheet, you can assess whether your business has borrowed too much money, has enough cash on hand, or whether your assets are liquid enough. 

2. Review P&L statements regularly 

Profit and loss statements (or income statements) show your business’s revenue minus expenses. A P&L statement should include all your businesses outgoings including rent, the cost of goods, freight, payroll and reoccurring bills.  

Review your P&L statements on a monthly basis. This will help identify any trends in your outgoings and make it easier to track your progress against budgets or targets.  

3. Monitor expenses closely 

If you want to improve your cash flow, you need to know where every dollar is being spent. Making more sales is important, but it’s important to remember that every sale comes with associated costs.  

Keeping outgoing costs down will help pad your bottom line and get you closer to positive cash flow. Keep a close eye on margins to ensure costs aren’t creeping up. 

4. Create a cash flow projection 

A cash flow projection forecasts the future incoming and outgoing cash flows of a business over the next few weeks or months. A cash flow projection helps identify the best times for investment and alerts businesses to potential cash shortages ahead of time. 

This is a great tool as it provides your business with more time to prepare for downturns or slower months. Ultimately, a cash flow projection is a vital tool for managing cash flow and can ensure your cash flow stays positive, even when your business incomings slow down. 

5. Work with your accountant 

Working with your accountant to learn how to manage cash flow in your business is one of the best ways to get cash flow positive quickly. Accountants are experts in how to manage money, so why not learn from their expertise?  

Depending on your specific situation, they may recommend doing cash flow budgeting on a weekly, monthly, or quarterly basis and advise you on a range of issues, including which invoices to pay first. Set up a meeting with your accountant to go through your finances and ask them to highlight any areas where you can improve.  

6. Keep clear records of supplier transactions 

We know keeping records can feel like a tedious task, but it’s important for a few reasons. If you don’t have a good idea of how much you’re paying suppliers, it’s impossible to negotiate better prices.  

Keeping clear records of transactions will help you gain leverage when negotiating terms and prices with your suppliers. Regularly reviewing your suppliers, such as your insurance or energy plan, can also help you find areas where you can save money. Shop around for deals with your suppliers on a semi-regular basis.  

7. Get payment cycles right 

Getting the payment cycle right for creditors and debtors can help you manage cash flow more effectively. Consider spreading the payments of invoices over the month when payments fall due rather than having one day per month designated to pay invoices. 

Keep your payment cycle tight by invoicing as soon as the work is completed. The longer you leave it the longer it usually takes for a client to pay you. Offering flexible payment methods is another way to encourage customers to pay you on time.  

8. Keep your personal and business finances separate 

Keeping your working capital and business bank account separate from your personal bank account is essential. Keeping personal and business finances separate helps to maintain accurate financial records, which is important at tax time.  

Separating personal and business finances will also protect your personal assets from business-related liabilities. If your business runs into financial trouble, the last thing you want is for creditors to go after your personal assets.  

9. Use purchase orders to reduce discretionary spending 

Using purchase orders to reduce discretionary staff spending can help you manage cash flow more effectively. Purchase orders are used to increase visibility inside your departmental budgets.  

They can help you see at a glance what you’ve ordered and received, reduce the risk of errors and discrepancies, and help you plan better, control cash flow and stay within the budgets you’ve set out. All in all, purchase orders are a great tool for maintaining positive cash flow. 

10. Be aware of rapid growth 

While business growth is the goal, rapid growth can often result in a cash crunch. It’s easy to lose track of finances and cash flow when your growth is outpacing your ability to keep up with demand. 

To combat rapid growth, update and review your business’ cash flow budget regularly, using conservative revenue and expense estimates. This will prevent cash shortages and help build your business’ credit track record. 

There are tools available to help you while you work towards your cash flow positive goals. Working capital, credit and overdraft facilities can help you manage the day-to-day running of your business.  

With ThinkCap you can gain access to a fully unsecured loan without having to offer any security through property or general security of your business. Talk to us today or apply now.  

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