Optimize Your Cash Flow

I know I don’t have to tell you about the importance of cash flow or optimizing it. I speak with a lot of business owners and leaders, and one thing about cash flow optimization is clear: While they all know of its importance, their solutions for achieving positive cash flow vary in approach and effectiveness. It seems that business leaders are not all aware of the best ways to optimize their company’s cash flow.

That’s not really a surprise, because there are several different ways to ensure your company finances are supporting your growth goals. Cash flow optimization requires a disciplined approach that anticipates liquidity shocks and allocates windfalls strategically in order to maximize opportunity. Not all business leaders can spot upcoming allocation or liquidity options. But then most business leaders are not supposed to be able to do the work of an experienced controller any more than I am supposed to be able to spot an impending plumbing leak.

Some methods of improving cash flow will work better than others for you. That can depend on industry- or even company-specific considerations, so this blog should not be used as a substitute for a discussion with a highly experienced Fractional CFO like the professionals at Hundley Advisors. But because I speak with so many owners and C-Suite executives who are overlooking some of the easier ways to improve their cash flow, I thought I’d share three easier solutions:

Use a Monthly Business Budget

Most companies have an annual budget, but that may not give you enough insight into your cash flow position. A monthly cash flow forecast can reveal potential shortfalls and enable you to respond in a timelier manner. If you wait until the end of the year, it may be too late. To create a monthly budget, look across all twelve months for ways to balance out your cash flow from the high-revenue months with the lower-revenue months.

Access a Line of Credit

If you have regularly find that you are faced with limited cash flow, one solution is to set up a line of credit. Like with a credit card, you’ll have money to spend that you can pay back during better months in your business cycle. Unlike a term loan, you’ll only pay what you use, along with interest on the outstanding balance. Best of all, once you’ve paid it off, your line of credit replenishes and is available again when and if you need it.

Manage Receivables More Effectively

While your business may offer clients 30– to 60-day payment terms, you may need the money sooner in order to pay bills, order inventory, etc. In this case, you can’t afford to wait for the payment deadline. One solution is to offer your clients a discount in exchange for earlier payment. Alternatively, you could accept credit cards or online payments and reduce the number of days with your payment terms. Accepting online or credit card payments may even help increase sales. A recent survey by the payment processing company Square found that 35% of customers said they would shop elsewhere if the vendor did not accept credit card payments. Just remember that you have to account for the card processing fees.  

There are certainly other ways to optimize your cash flow. Some require a better understanding of business finance. If the three suggestions here do not help, take a look at our Cash Flow Management Tips During Inflation blog or schedule a call to discuss your circumstances.