My business is struggling to make ends meet. What can I do to improve cash flow?

Rest assured, we get this question a lot! This is especially the case for small businesses that were active during the pandemic and continue to face various challenges. However, in most cases you can get back on track one step at a time.

Effective cash flow management is the backbone of a successful small business. Cash flow refers to the movement of money in and out of your business, and keeping it balanced ensures you have the resources to cover expenses, invest in growth, and handle unexpected challenges. Here are actionable strategies to improve your cash flow:

1. Track and Forecast

Maintain a detailed record of your cash flow to identify patterns and anticipate potential shortfalls. Use accounting software to monitor income and expenses and create forecasts. Knowing when money is expected to come in or go out helps you plan better. Look over your P&L, Balance Sheet, and Cash Flow Statement to become very familiar and critical of your income and spending habits.

2. Optimize Invoicing

Send invoices promptly and ensure clear payment terms. Consider offering early payment discounts to encourage quicker settlements. For recurring customers, automated invoicing and payment reminders can save time and reduce late payments. Follow up immediately on unpaid invoices and stop providing services or consumer goods to those that have past due balances. For service industry providers, if you are able to do so, try collecting fees up front instead of invoicing after the work has been performed. If you haven’t evaluated your fees in a while, maybe it is time. You may need to increase the fees you are charging.

3. Control Expenses

Regularly review your expenses to identify unnecessary costs. Negotiate with vendors for better terms or discounts, and consider bulk purchasing where possible. Small savings can add up over time. Critically evaluate every expense. Is it necessary? Can you reduce the subscription level? Is there a different option that is less expensive?

4. Maintain a Cash Reserve

Set aside a portion of your income as a contingency fund. This reserve acts as a safety net during slow periods or emergencies.

5. Improve Inventory Management

Avoid overstocking or understocking by analyzing sales trends and adjusting inventory accordingly. Excess inventory ties up cash, while insufficient stock can lead to missed sales opportunities. Think LEAN practices!

6. Explore Financing Options

Consider short-term financing solutions like lines of credit to bridge cash flow gaps. Be cautious with borrowing and ensure repayment terms align with your revenue.

By implementing these strategies, you can create a steady cash flow that allows your business to thrive, grow, and weather any financial storms. It will take time to get ahead and feel more secure, but if you take these steps and continue to do so on a regular basis, you have a great chance at success.

This Q&A does not constitute legal, accounting, or tax advice and

does not address state or local law.