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Five Tips to Improve Business Cash Flow

Keep your company nimble for the next big thing that comes through the pipeline


Running a business is hard work – juggling priorities while simultaneously reacting to shifting market conditions and demand. And, it’s likely the first priority is to make the business successful, which includes optimizing the company’s income/expense ratio.

To help adjust to the business’ liquidity needs, take a look at the following tips for improving cash flow

1.Improve your forecast: One of the best strategies for improving cash flow is to develop a forecasting model and method that works for the business. In order to predict the income it will have over the course of the year, it’s important to understand the ebbs and flows of the company’s purchase journey and the changes in the market that may impact customer choice. If the forecast consistently puts the company in a tight spot financially, dedicate some time to review process and numbers with a business banking partner.

2.Consider your “float” timeline: Balancing supplier payments with receivables is tricky, and can make even the most seasoned business owner nervous. Many companies choose to pay suppliers with a check, which provides a 1-2 day “float” period before the money is debited from the business account. If that is all the time you need, that’s great, but some businesses prefer a longer buffer. To extend that timeline, you can pay suppliers with a credit card, which allows you 30 days to collect receivables before the cost hits your account. However, make sure you can adequately manage payments to minimize interest charges.

3.Take a closer look at competitors: If it feels as though the company should be bringing in more sales income, that inclination may be correct. Conduct a competitor review: how do their product lines or services compare? Is pricing similar or way off target? If the company is selling for substantially less or more than competitors, it may be damaging chances to maximize income. Try to maintain fair market value for goods—pricing items too low can mean missed profit, but pricing items more than they are worth to the consumer likely means fewer sales.

4.Clean house: If cash flow is top of mind, take a look around. Is there old, outdated or obsolete equipment that can be sold, refinanced or salvaged? Spend some time reviewing assets to determine how they can help the business work smarter and gain back some liquidity. If the business is inventory-based, assess supply regularly. Are there enough of the essential items? Is there too much inventory of something that sells inconsistently or seasonally? Holding on to supplies can constrain cash supply, so order carefully and clean out frequently.

5.Review bank relationship: If this hasn’t been done lately, it may be time to evaluate all of the tools and tricks the bank can provide to help improve cash flow. For instance, if receivables are slow enough to cause concern, review payment solutions to make sure customers are able to quickly and easily pay. And, check for interest-earning accounts for business accounts that carry larger balances so the company can earn more over time. In addition to these options, there may be other cash management tools the bank offers that can help optimize monthly income and expenses.

Positive cash flow can help maintain operations, adapt to changing business needs and ensure the company continues to run smoothly. Use these tips to improve business cash flow and keep the company nimble for the next big thing that comes through the pipeline. 

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Dominic Karaba

Dominic Karaba is Executive Vice President of Small Business Sales at UMB Bank. He can be reached at Dominic.Karaba@umb.com.

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