# **A Beginner’s Guide to Understanding and Improving Cash Flow for Your Business**
As a new business owner, you are likely enthusiastic and optimistic about your business, busy googling for alternative investment ideas, filing invoices, placing orders, and managing employees. Everything seems to be looking great, and you have even turned a profit. However, one of the most crucial aspects of your business operation, which should never be overlooked, is cash flow. Poor cash flow can be a significant threat to your business, leading to serious money troubles if you don’t take the necessary steps to keep your finances, operations, and investing activities running smoothly and efficiently. Therefore, to ensure your business’s longevity, it is essential to have proper business cash flow protection.
If you are already struggling with debt, it’s best to get it settled first with the help of a bankruptcy lawyer before changing any financial strategy your business may have.
## Understanding Cash Flow
To keep track of your business’s financials, you need to understand what each item represents to ensure that your financial management, operations, and cash flow are on track. Turning a profit isn’t the same as having a great cash flow. Profits are the monies you receive above the overhead costs associated with the production, sales, delivery, etc. On the other hand, cash flow represents the amount of money you have in the bank at the start of the month and the money going out each month- in other words, the flow of cash in and out of your business at any given time. Failing to take care of your payables before you have your receivables can cause a cash flow problem. You might have made the money to pay for your debts, according to the books, but the invoices on those sales are outstanding and may not be paid before the bills are due. A cash crunch can affect things like payroll obligations, paying your health or business insurance premiums, covering your vendor accounts, or utilities.
Looking into a NetSuite solution provider can also help you automate your books for better efficiency.
## Keeping a Reserve
One of the best strategies to improve your cash flow is to keep an emergency fund, irrespective of whether you have gone to a traditional lender for a cash influx or you pitched your business idea to a venture capitalist like Mark Stevens. Regardless of how much money you have, it is sound business practice to keep at least three to six months’ operating costs in the bank for emergencies. This fund should not be used for long-term cash flow problems; instead, you should look into implementing the following strategies:
## 1. Improve Billing Practices
Offering a small discount to customers who pay their bills before the due date can create an incentive that energizes your customers and creates loyalty. This strategy not only improves your customer relations, but you also get your cashback in the bank, improving your cash flow. Always send out invoices as soon as the purchase is made. This encourages more timely payments.
## 2. Lease Equipment
Leasing equipment is an effective short-term strategy for saving your cash flow. Although it may seem like a more expensive option when it comes to the bottom line of your finances, you will pay less upfront for the equipment or supplies, and you may save on things like repair or upgrades since many vendors include those costs in the lease agreement. You can also count lease payments as a business expense, which can help you out around tax time.
## 3. Form a Co-op
Pooling your money with other small business owners to form a buyer’s coop can be an excellent way to negotiate better rates when you buy things in bulk. Suppliers are more willing to haggle when you buy in larger quantities, making this an excellent strategy to adopt as a small business owner.
## 4. Check Your Customers
Rather than being desperate to make a sale, don’t sign on the dotted line if a customer does not have the means to pay you in cash, or you have not done a credit check. When a customer has poor credit, you assume a serious risk in letting go of your inventory. This can have ripple effects on your cash flow if the customer defaults on the payments. It might cost you additional funds in trying to collect the past due amounts, offsetting some of the costs by assessing a higher interest rate for customers with questionable credit.
## 5. Assess the Inventory
While your warehouse might be well-stocked, outdated products that are not moving out the door could be hurting your business’s cash flow. You would be better off having a discount sale and seeing some return on the investment you made than having money sitting around on shelves.
## 6. Pay Online
Making use of online bill payment systems or automated billing centers would eliminate the need for having to mail your checks and waiting for them to clear. Paying bills electronically on the due date gives you extra time while waiting for cash to come in. You can also check on the grace period of credit cards, helping boost cash flow if you hold out on payment for an extra week.
Without consistent cash flow, even the most profitable business will not survive. It is crucial to track your finances each week to stay on top of the data. Implementing some or all of the strategies outlined above can help you improve your business’s cash flow and maintain a healthy balance sheet.
