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Cash flow is a common problem for many small businesses. In fact, 1 in 7 small business owners have been left unable to play employees because of cash flow issues. Having problems with your cash flow can have a significant impact, particularly on small businesses.

Why is cash flow so important?

Cash flow management is at the foundation of any business. Businesses must aim to have more money coming into the business than is leaving the business, allowing cash to ‘flow through’ and storing some in reserve. When a business has more cash going out than coming in, disaster can strike, especially if this occurs for a significant period. A business will begin to eat into cash buffers, potentially risking closure.

It is therefore essential that small businesses have a strong cash flow management strategy in place.

So how can SMEs improve their cash flow?

This article will explore 6 quick-wins SMEs can make take to improve cash flow in 2021.

1. Understanding your finances

Our first recommendation is to make sure you have full visibility of the health of your finances. While many small businesses prefer to stay in the dark when issues arise, this is a common downfall for many as you cannot solve the cash flow challenge your business might face.

Once you have full visibility of your cash flow statements, you can generate an accurate cash flow forecast and budget. This will enable you to better understand where your money is going and what is available to the business, meaning you’re less likely to over-invest or overstock, and you’re more likely to be able to handle unexpected expenses, should they arise.

If finances really aren’t your thing, it could be worth sourcing the help of an expert to take the pressure off your shoulders.

2. Make cutbacks where you can

This might seem obvious – but a great way to improve cash flow is simply to reduce your outgoings.

As a small business or a start-up, there are often a lot of unexpected costs that you feel you need to pay out for to be successful, such as fancy office furniture or high-end tech. While these luxuries certainly make the small business life more comfortable, and potentially benefit your customers and/or employees, they can be hard-hitting on a small business cash flow.

Making cutbacks where possible will ensure you keep more money in the business, providing you more of a cash buffer and meaning you’ll be more ready to adapt to any small business challenges.

3. Keep your payment terms up to date

35% of SME owners waiting on late payments must rely on their overdrafts to get by each month. That is a very high proportion of SME owners!

One way to combat this is to ensure your payment terms are well-established, clear and up to date. Providing straight-forward payment options can benefit your clients and help support faster payments. Adding late fees is also an option, though it is again recommended these are very clear from the get-go, to avoid any tension further down the line.

In ensuring your payment terms are up to date, you can hope that your invoices will be promptly settled by clients, while also saving money on any time wasted chasing late payments. Win win!

4. Sell more stuff

Though we mentioned the impact of cutting back your outgoings, you can also work to increase your income!

Make your products and services more attractive with discounts and bundles.

Plus, consider investing in marketing and advertising. With social media, email, and other forms of digital marketing readily available, it could be much cheaper than you think to bring in additional revenue and boost your cash flow.

5. Consider getting a loan

We saw earlier that 35% of SME owners rely on overdrafts to get by each month. But this can be an expensive and stressful way of keeping cash flowing into your business.

Securing a business loan, or re-financing an existing one, could be a much better option – especially if you can get favourable rates and more manageable repayments in the process.

This will take some of the pressure off your shoulders and guarantee money flowing through your business.

6. Consider outsourcing

Having an expert help you with your cash flow management can greatly reduce the stress, admin and complications that arise with cash flow – as well as giving you the peace of mind that you’re making the right decisions to keep your business’ financials in tip-top shape.

While this is another overhead or expense to consider, it is worth noting the value that an outsourced expert can bring. Whether it’s specific to cash flow, or about raising finance or accounting – a financial expert can bring recommendations, strategy advice, plus fulfil the tasks you hate, freeing you up to focus on your business.

Simple steps to improve your cash flow

Improving your cash flow is no easy feat – but there are many simple steps you can take to ensure cash is flowing through your business, setting you up for success. Whether you decide to get a business loan, outsource or simply reduce your expenses – you’ll be having a positive impact on your cash flow and ultimately your business.

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About the Author

Anita Tweats MBA is the CEO and founder of The Finance People, which offers flexible, expert financial support to businesses of all sizes.

With solid experience working in accountancy practices, in industry, and as a lecturer, Anita offers expert knowledge and straight-talking advice on all things finance.

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