The success of a business is largely subject to the profit it makes. However, profit is not the only deciding factor in a small business. You have to take into account other financial aspects like accounts payable, taxation, employee salaries and inventory. Once you monitor these numbers, only then can you determine whether the cashflow is your business’s favor or not. A negative cashflow can get your business in serious financial trouble, even causing bankruptcy in some cases. To better understand how cashflow impacts your business, you should first know what cashflow is.

Cashflow is the constant flow of money, in and out of a business, that is essential to keep the business running. Business owners track their cashflow monthly and even weekly to effectively manage their funds.

Positive cashflow

This refers to when the amount of funds entering a business is more than the amount leaving it. You want your cashflow to be positive as it indicates that you’re making more money than you’re spending.

Negative cashflow

A business’s cashflow is said to be negative when the outflow of cash is larger than its inflow. Extending periods of negative cashflow can be very detrimental to a small business.

You now know what cashflow is and why you want the movement of your business funds to be in the green. Now we’ll tell you how you can stay on top of your funds and maintain a positive cashflow.

Regular monitoring of business cashflow

Most businesses monitor their cashflow on a monthly and even weekly basis. This is easier than quarterly scrutinizing of the numbers. Ideally, cashflow should be monitored daily, or at least 2 or 3 times a week. Training an employee to regularly keep an eye on the cashflow may prove to be a worthwhile investment.

Go digital

In today’s world, most services have moved online and there is no reason for your business to not do so. Consider using an online accounting service, this keeps your funds and information safe in the cloud and you can easily access it even with a smartphone. Going digital also means that you can promote online payments. This will substantially increase the speed at which your clients pay their tabs, thus decreasing any gaps in the cashflow.

Liquidate obsolete assets

If there is equipment in your inventory that is no longer in use, consider liquidating it for cash. Unused equipment takes up space and ties up capital, capital that you could use to settle payments, expand your business dealings and generate profits.

Manage your expenses

Maintaining a healthy cashflow means keeping your expenses at minimum. Apart from this, you can also look for ways to save money by cutting costs on inventory items you don’t need, and looking for lease and rent discounts. Leasing equipment is also an effective method of cutting costs as it keeps the cash from getting tied down. Being a small business owner, there is always some degree of stress related to future and financial security. This is where insurance for small businesses comes in. It provides an umbrella of security against almost every adversity.

Speed up your invoicing process

Send out invoices as soon as you’re done with the work or you’ve delivered the product. The faster you send out invoices, the quicker your business will have cash in its bank account. Address the invoice directly to the person responsible for making the payment. You don’t want any delays due to lack of information on the invoice. To prevent this, make sure the invoice design and layout is legible and that it states all details clearly.

Offer discount incentives and penalty for delayed payments

When you offer a small percentage of discount on early payments, your clients will have enough incentive to make the payment. Though it will eat into a minute portion of your funds, the early payment would make up for it by decreasing cashflow gap. You can also add an interest on late payments. When you clients see the penalty racking up, they will feel inclined to pay as soon as possible.

Delay payables

Try to keep your money in your account for as long as possible without incurring a fine. This will help you settle down other pending payments or simply keep the capital with you for a bit longer.

Always have a cashflow backup plan

Unpredictable circumstances may destabilize even the most well-planned cashflow strategies. In case of an unforeseen cashflow gap, you will benefit by having a credit line to cover some or all expenses. Saving some capital from business profits in a separate bank account is also wise. This will help you cover expenses without approaching a bank for a loan.

Small businesses are not immune to cashflow mistakes, and they may cause instability in your business. However, a few missteps are not enough to have a drastic effect on your operations. Once you adjust your business strategy and cashflow management, your small business should be able to bounce back.

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