It is important for all small businesses to be aware of the importance that effective cash flow management has on daily operations and the impact it has on short and long term strategies. Maintaining a healthy cash flow can be the difference between success and long term struggle. Let's take a look at 5 tips that can help you improve your cash flow.

It is important for all small businesses to be aware of the importance that effective cash flow management has on daily operations and the impact it has on short and long term strategies. Maintaining a healthy cash flow can be the difference between success and long term struggle. Let's take a look at 5 tips that can help you improve your cash flow.

1. Customer Analysis
Review your customers and your sales policies. Do some of your customers have a habit of paying late, or not at all? Be wary of extending too much credit to customers who have bad credit histories, as you may end up with thousands of dollars in receivables that you may never see.

Take charge of your receivables with proper invoicing and payment terms. Consider small (1-3%) discounts if customers pay early, or in cash. Track your customers and invoices using an appropriate software program to ensure payments are made and outstanding receivables are dealt with in a timely manner.

Know your customers. Keeping in touch with customers and developing a healthy relationship may not only brighten your day, but ensure that you also get paid at the end of it!

2. Vendor Analysis
Review your suppliers and their sales policies. Remember that cash is most valuable when it is in your hands, not in someone else's. Paying on time is important, but it is not necessary to mail out cheques the day an invoice comes in. Moreover, consider negotiating with suppliers for more favourable payment terms. It may be worthwhile to consider breaking up large invoices into smaller, monthly payments. Again, developing healthy relationships with your suppliers may provide you with greater leeway to deal with bills when cash is tight.

3. Reviewing Expenditures
Budgeting is a key planning component for all businesses, large and small. It is important to compare budgeted to actual expenditures, to see if you are spending more than you can afford. Consider monthly or quarterly reviews, and analyzing costs to prior periods for comparative purposes. A review can also help identify expenditures that are too costly or add little value to your company.

It is also important to review who you are purchasing from. Shopping around to find a better deal can help cash-starved businesses gain that extra bit of breathing room.

4. Managing your Assets
Monitoring and analyzing your inventory is extremely important. It may be easy to forget the hidden costs associated with having high inventory levels, which include storage and obsolescence costs. For this reason, it may be more beneficial to avoid bulk ordering, even if you would receive a discount. Try to keep inventory levels low by marking down and selling older inventory.

Purchasing expensive capital assets can be a daunting endeavor for a small business. You should speak with your accountant or trusted financial advisor to determine the best possible method of financing the equipment you need for your business.

5. Look Ahead
Plan ahead, and be proactive. Identify and manage business risks before they become a threat to your cash reserves. Set goals and/or target cash levels for more organized financial planning. Be active within your business, and learn where your cash comes from and goes to. 

For more guidance on these issues, be sure to speak with your RLB LLP advisor.