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Contents

  1. 1. How can I improve my cash flow management?
  2. 2. What is cash flow?
  3. 3. Why is cash flow so important?
  4. 4. How do you avoid problems in your cash flow?
  5. 5. Six strategies to improve cash flow management

How can I improve my cash flow management?

August 5, 2021
As we slowly emerge from the pandemic, it's now more important than ever to have a firm grasp on your business's cash flow. Not only do you need to know what cash is coming in and going out of your business, but you also need to know exactly how to manage this cash to avoid bankruptcy.It has been reported that across the UK 38% of small business owners who have suffered cash flow problems have been left unable to pay debts.  In fact, 21% of businesses do not know how long they could last on their current cash reserves. It doesn't need to be this way, with a proper cash flow management strategy in place, this can be avoided altogether.Understanding your cash flow can make all the difference when it comes to the success of your business.If you're keen to work on improving cash flow management, this is the article for you. We are going to cover the top six strategies to managing your cash inflows and cash outflows, helping you to maintain a healthy cash flow.

How can I improve my cash flow management?

Between understanding your past cash trends, tracking your current invoices and expenses and making realistic financial forecasts, you can significantly improve your business's cash flow.To improve cash flow management you need to utilise tools that allow you to clearly see the cash coming into your business and the cash going out. Tracking your invoices and expenses is crucial to managing the cash in your business.We'll dive into this in a bit more detail later on, but first, let's explore what cash flow actually is and why a good cash flow is so important in your business.

What is cash flow?

Cash flow is the movement of money in and out of your business. Money coming in could be through sales, operating expenses, investments, inventory, or capital expenditure. On the other hand, money going out might include stock payments, loan repayment, tax, software subscription payments, and employee payments, to name but a few.Knowing what is coming in and what is going out of your business is one of the most important things to be aware of in your business.Positive cash flow: This is when the cash coming into your business is more than the cash leaving your business. Positive cash flow is not the same as profit. What might appear as profit on paper isn't necessarily positive cash flow or cash in the bank. We explore this further below. Negative cash flow: This is when your cash outflows are greater than cash inflows. If more money is going out of your business bank account than coming in, you might need to rely on your cash reserves before eventually becoming bankrupt. Positive cash flow is obviously the target for any business. However, it doesn't necessarily come easily, especially if you're a small business or start-up. It takes effective cash flow management and analysis to take control of your accounts and to remain in a state of positive cash flow. To learn more about cash flow and to understand where it slots into your overall business accounting, check out our article The Ultimate Guide to Small Business Accounting.

Why is cash flow so important?

Cash flow is so important because it is an accurate depiction of the financial state of your business. As we identified above, appearing to make a profit is not the same as having a positive cash flow. Even if you appear to be making a profit on paper, it does not automatically mean that you have cash in the bank and you could be at risk of negative cash flow. 

How do you avoid problems in your cash flow?

The best way to avoid problems with your cash flow is to take control of it by having a solid cash flow management strategy in place. It is time to become friends with your financing. With Ember, you no longer need to bury your head in the sand as our user-friendly and easy to understand app generates a cash flow forecast for you, showing your outgoings in real-time and tracking your invoices, keeping you on top of your cash flow. If you can clearly see your financial position at any given time, you can make smarter businesses choices and can pivot when needed to avoid bigger problems occurring.

Six strategies to improve cash flow management

Now that we know why cash flow management is so important and how it can make all the difference to the success of your business, let's dive into the six strategies that can improve your business's cash flow management.

Invoice management

As a business owner, you know that your invoices are the bread and butter of your company. Without invoices, you don't get paid, simple as that. So it is important to handle your invoices with efficiency, precision and care. You want to get your invoices out immediately. The sooner they go out, the sooner the cash will come in. In order to speed up the invoicing process and to avoid unnecessary delays, it is important to send them out promptly and to make sure that they are correct beforehand. When it comes to invoices, one of the biggest burdens is late payments. In fact, it has been reported that 43% of small-medium enterprises (SME) across the UK spend £4.4 billion in administration costs chasing up unpaid invoices.To avoid this there are some strategies that you can put into place. For example, you can request upfront payments or partial upfront payments to ensure that you can cover your basic business expenses. 34% of SME business owners rely on overdrafts to cover their monthly obligations when experiencing late payments. Insisting on upfront payments can help avoid this.Sending automated gentle payment reminders around the due date through email can also help nudge clients to pay their invoices in a timely manner. 

Expense management

After invoices, we move onto expense management. A key aspect of taking control of your cash flow is being able to track your expenses and the money leaving the business.Fortunately with Ember, you can capture and categorise expenses on the go. You are able to snap and store your receipts both in-app and on a desktop to manage your expenses as they happen, rather than letting them pile up. This simple change of habit can make all the difference to improve business cash flow.An easy way to start proactively managing your expenses is to review your cash flow monthly and make changes as and when they are needed. You can use this as an opportunity to highlight any unnecessary expenses and make cuts if needs be.Another tip to help optimise your expenses is to build good working relationships with your suppliers. This might help secure flexibility, discounts, or offers and will generally make the experience of running your own business a whole lot nicer.Investigate bulk inventory purchases from your suppliers to benefit from discounts or even propose discounts for early payments. Remember that you paying your invoices is the exact same as your customers paying theirs, so work on this supplier relationship by avoiding late payment penalties.

Forecasting

Another handy way to manage your business's cash flow is to utilise historical data to build cash flow projections. It is important to be proactive when it comes to your cash flow. If you have repeat quiet periods or seasonal slumps, be prepared for this.Consider what you can do now to help support your business through these periods. Do you need to start putting away cash reserves? Do you need to consider making offers or discounts to attract new customers?

Diversify your cash flow

This one isn't strictly cash flow management, but it can certainly support the way that you approach your cash flow.Diversifying your offer can improve your cash flow, especially the ways in which money comes into your business. It might not always be the obvious root but it could supercharge your entrepreneurial journey. Consider expanding into other markets; for example, if you run a coffee shop, why not create branded merchandise that your customers can purchase alongside their coffee?Get creative with the ways in which you generate extra income. Could you utilise your assets in other ways? Your assets include your employees, your space, your intellectual property, your equipment and so on. For example, if your business sells kitchenware, could you also run cooking classes in the evening? If you run a service-based business, could you package up your service into a product? What about making investments? Could you leverage passive income opportunities like this to help improve your cash flow? The possibilities are endless, it's time to get creative.These big changes aren't going to suit everyone, but there are smaller steps that you can take to improve cash flow as well. Remember that one of your biggest assets is your customers. Retainment is the new acquisition, consider incentivising your current customers so that you can guarantee their loyalty. 

Be smart with your finances

Another way to manage your cash flow is to be smart with your finances by putting your money to work. We've already considered making investments, which can be a significant way to use idle cash.Make sure that you have a business account that offers incentives, and good interest rates. Shop around and benefit from the new customer offers and promotions. Ember can connect with any business bank, so take your time to find the right one for you.Another important factor to consider is your bank's safeguards and security. Avoid fraud and unauthorised access to your account information by taking the necessary measures to protect your financial information. 

Utilise tools

For a quick and easy way to take control of your cash flow, start utilising tools and software that are built especially for this purpose. Find a management tool that you understand and enjoy using that can become an easy addition to your daily tasks. Fortunately, Ember was built with this in mind, and can easily categories your transactions, capture your expenses, and automate your invoices at the touch of a button. We even go one step further and provide that human support for a professional perspective on your finances when you need it most.When it comes to cash-flow management, utilising tools and software can be an absolute game-changer. All of the strategies that we have outlined above become much easier when you have the right management tools in place to support them.

Summary 

So there we have it. Hopefully, you now feel like you can tackle your cash flow management with confidence. When it comes to managing cash flow, having the right tools in place can make all the difference. You don't need to avoid your cash flow statement, with the support of Ember you can become friendly with it and start using it to support your small business.  
Rachel Cameron-Potter
Rachel Cameron-PotterContent Marketer

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