Maintaining cash flow is one of the most important parts of your role when you own a business.

Imagine your business as a person. If your generated income is the beating heart, then your cash flow is the blood pumping throughout it, providing oxygen to every department so that your company can successfully function.

As a result, it is crucial to keep that cash flow healthy and moving, so that each arm of your business has the energy it needs to function properly.

So, read on to discover five tips that could help to improve your business cash flow.

1. Create a comprehensive overview of your business finances

Before you can make decisions about cash flow, it is first necessary to create an overview and understand your current position.

This overview needs to include all your expected cash receipts and planned expense payments, which should give you your total net cash balance. This information is crucial, as it means you can make decisions based on the figures you calculate.

There are various pieces of cashflow forecasting software available that you can use to help you do this. It may be worth investing in one of these programmes to give you more detailed insights and help you make even more informed decisions.

As part of this forecast, a good test for your business finances is to use the “one-day cash flow value” test. This involves considering what would happen if you were unable to collect receivables, sell goods and services, or pay your suppliers in one day.

If you are unable to do this, it might indicate an issue that needs rectifying as soon as possible. Otherwise, your entire cash flow could grind to a halt in just 24 hours.

2. Make sure everyone is trained on cash flow and communicates effectively

Cash flow is important in many different departments, so ensuring that everyone is trained to understand why it is vital can help them manage it effectively.

By knowing why cash flow is important, each department leader can put measures in place to prioritise maintaining it. For example, that might be your sales department offering different payment terms to various customers, in order to stagger income.

Or, it might be your marketing team deciding when to create promotions and offers, only doing so in periods when sales have been historically lower.

It is also key to communicate throughout the business. Encourage your team to discuss these matters between departments, ensuring that everyone is on the same page about the steps they can take to keep your cash flow moving.

3. Manage the timings of your income and expenditure

A practical step you may be able to take to manage cash flow more effectively is to balance the timings of income and expenditure.

For example, you likely have some form of consistent income, perhaps from subscriptions or return customers. Meanwhile, you will also have regular payments to make and bills to settle.

So, an effective way to positively manage your cash flow is to make sure that these events happen slightly apart. That way, if you receive your income later than expected, you will have time to recover this ahead of paying your bills.

It may also be worth keeping an additional cash reserve, giving you access to cash in the event that there is ever a gap between income and expenditure that needs covering.

4. Review your pricing structure

When you are looking to solve a cash flow problem, the issue can often come down to the fact that your income simply does not adequately cover your outgoings for you to grow the business. In this case, it may require you to look at your pricing structure.

While no business owner really wants to increase prices, sometimes it is necessary. Most businesses will no doubt have been affected by the rising cost of living over the past two years, with inflation measured above 5% in 23 of the 24 months to October 2023, Office for National Statistics data shows.

If you do decide to raise prices, make sure you communicate this clearly. Transparency is key to maintaining trust with your customers or clients, so being upfront can go a long way in softening the blow of higher costs for them.

You could also explore alternatives to raising prices, including:

  • Reducing the size of your product or service
  • Offering a variety of pricing structures to your customers and clients
  • Coming up with new marketing initiatives to drive sales.

While these options will still present a change to your consumers, it can be more tolerable for them than simply seeing the price go up on the same product or service.

5. Check whether there are potential savings in your expenses

The other side of the coin to raising your income is to see whether you can reduce your expenses instead. This can help your income go a little further without having to pass this cost on to your loyal clients and customers.

Speak to your suppliers and see if they are able to negotiate a more favourable deal. If there is no room for savings, it may be worth shopping around and trying to find a similar alternative at a lower cost.

Furthermore, reassess all your memberships and subscriptions. Check whether you or your team actually need them, or whether you could simply cancel them now and save some money.

Similarly, consider whether your business premises are the most cost-effective option. Could you move to a cheaper space to run your business?

Or if you are not using the entire premises, could you downsize where you operate? This could help you save on rent and utilities for space you do not really need.

Consider all your options here. Reducing your overall expenditure by even 1-2% might create a bit of distance between your income and spending to make it slightly more comfortable for you each month.

Get in touch

Need help managing your money as a business owner? Please do get in touch with us at DBL Asset Management.

Email or call 01625 529 499 to speak to us today.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.