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How to improve cash flow to grow your business

Worrying statistics from a ONS study show that up to 55 per cent of start-ups fail to survive their first five years, with poor cash flow being the main reason for failure (90 per cent). Problems with cash flow appear when a business is paying out more than they are receiving, and not knowing how to improve cash flow constantly leaves a company without the necessary funds to pay their expenses.

Previously, we have looked at the negative effects that late payment of invoices can have on a small business. Today’s late payment culture is affecting cash flow in businesses across the country, creating a knock-on effect and hitting small business owners the hardest. It’s vital to understand how to improve cash flow and keep it as healthy as possible, in order to give your business the best chance of success.

How can poor cash flow affect your business?

A lack of available funds restricts the growth of a business in a number of ways, leaving small business owners wondering how to improve cash flow in order to expand.

Small businesses fall foul of missing out on good opportunities for expansion due to a lack of available cash. Not being able to purchase a new piece of equipment, or being unable to purchase stock in bulk to secure the best price minimises a company’s efficiency and profits.

Similarly, being unable to pay for extra staff or resources means that accepting large orders is often impossible. A small business in this situation will find it extremely difficult to grow without the added profit from these unfulfilled orders.

Poor cash flow can also be damaging to professional relationships, including suppliers and staff members. A business is seen as unprofessional if a lack of available funds means that paying an invoice is delayed, potentially causing tension and costing future deals. Staff members will be negatively impacted by late payments of wages, leading to an unenthusiastic workforce with doubts about their future.

How to improve cash flow to grow your business

Here are a few things to consider when trying to improve your business cash flow:

  • Due to minimal resources in a small business, often the day-to-day running of the business and the accounting falls to the same person. Daily tasks may seem to take priority, however it is vital to keep on top of the books to ensure that your company stays in profit. Consider investing part of the budget to pay for accountancy services, who will be able to highlight areas in which you could save money.
  • While it might be tempting to use the latest equipment, if the system currently in place is working well then it is important to spend realistically, as upgrading may in fact harm your turnover.
  • Access short-term funding options to boost cash flow, such as a business cash advance. Rather than a traditional bank loan, these can be received in a matter of days with minimal paperwork involved. Rather than paying back a lump sum each month, a cash advance has flexible repayments that are deducted daily from card turnover.
  • If you are paying regular bills, such as rent, line rental or suppliers, try to see if the bill could be paid at a more suitable time of the month. Spreading them throughout the month or paying all at the same time may suit your business better depending on times where you are more likely to have available cash, minimising the risk of going into the red.
  • Analyse the credit terms your business currently operates to and make improvements where necessary. Depending on your industry, you may need to ask for payment on receipt of goods, or give customers a certain amount of time to pay their invoices. Implementing strict rules regarding payment and enforcing them will ensure that your cash flow stays as healthy as possible.

If you’d like to find out how to improve cash flow with a business cash advance, get in touch with one of Quick Capital’s friendly advisors today and see how much you can raise.

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Filed under: General , Advice

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