28 Ways to Improve Cash Flow

I hear many Business Owners and CEO’s stress about Cash flow. The hard part is they don’t know what to do about it. They have profits and don’t understand—“Where did all the cash go?” The truth is that profits don’t equal cash flow, and many struggle with the concept of profit vs cash.

Your cash flow has to cover the cost of your operations—including payroll and other expenses, you also need to generate cash to pay yourself and invest in future growth. Is money flying out faster than you can make it? Or do you have plenty of reserves for payroll and operational expenses? Are you comfortable with your cash flow to be able to invest in future growth?

Whether you have a $1M or $50M revenue business, if you handle cash poorly, the reserves won’t be there when you need to make payroll or pay an important bill.

Understanding Profit vs. Cash

You can have plenty of profits and no cash to show for it. How? First, let us understand the difference between profits and cash.

Your profits are the excess of what you earned in revenue over what you incurred in expenses. It’s the bottom line of your income statement, whereas cash flow is the net amount of money flowing in and out of your business.

Profitability and the Income Statement

Your income statement, also called the profit and loss (P&L) statement, shows a historical summary of your income and expenses. It shows you how profitable the business is over a period of time.

A typical income statement includes: Revenues – Expenses = Net Income

The income statement shows your business’s income over a span of time, whether it’s over a week, month, or year, depending on the timeline you’re tracking. While this statement is critical to seeing overall growth and health in your finances, the statement itself won’t be able to detect poor cash flow—because money behaves in different ways.

Cash Flow Statements

Your cash sources in business are largely determined by operating, investing, and financing activities. Having robust recordkeeping of when/what amount of cash is coming in and going out of the business—i.e., the cash flow statement —will provide insights to the health of your cash.

Your cash flow statement brings important expenditures to light, such as fluctuations in assets: changes in Accounts Receivable, any purchases in equipment, and other investing activities that aren’t included on the income statement.

It also shows impact on cash from changes in your liabilities and equity accounts. If you paid off debt, that will use up cash but does not show up on the income statement.

Other Ways to Improve Cash Flow

Even if your business is in a rut, there ARE quick fixes for improving your cash flow. It starts with processes, technology, and implementing best practices. Here are a few ways that could help you make necessary improvements when evaluating your cash flow:

Automate Invoicing Through QuickBooks

The less manual data entry your accounting department has to do, the faster you can get billing out the door and money in the bank. Make sure you set up recurring invoices, and automate time tracking, labor costing and employee expenses in QuickBooks so everything’s already in the system when you send an invoice.

Bill Weekly Instead of Monthly

Putting billing off until the end of the month delays the receipt of cash and can severely impact cash flow. If you can bill weekly, as it can significantly improve the timing of payments.

A word to the wise: Research has shown invoices sent out on weekends are paid within 39 days; whereas invoices sent on Tuesdays, Thursdays or Fridays take a full 10 days longer to get paid.

Sort A/R Aging by Amount, not Alphabetically

Instead of focusing on past due clients in alphabetical order: A, B, and C to start; sort your accounts by the largest balances; that way, you’ll get the greatest returns. Make sure your aged A/R report doesn’t default to an alphabetical aging A/R, or you may be cheating your business out of getting timely money, and ergo, negative cash flow.

Establish a Written Credit Policy

Before you start doing any work for a client, make sure you include a credit policy in your terms and conditions. This should outline payment terms, late fees and legal fees in the event that you have to go to court to collect payment. Without a written credit policy, you’ll leave room for the client to delay or avoid payment.

Implement Pay Slow Rule

For optimum cash flow, don’t have a clean desk rule—If you or your staff member who is responsible for bills pays everything at once for the sake of a clean desk, it won’t benefit your cash flow in the end. It’s important to space everything out—whether it’s an early payment discount, or exactly on-time, for improved cash flow in the long run.

These are just 5 of the 28 ways you can implement to improve cash flow in your business. I’ve outlined all of them in our most recent ebook, “The CEO’s Guide to Improving Cash Flow”.

By having a systematic and iterative billing process, you’ll be able to experiment with cash flow timing and discover what works best for your organization, reaping the benefits of a streamlined process.

Ensuring positive cash flow involves a variety of factors—including the time between invoicing and getting paid, the quality of your clientele, pricing, and your billing processes.

A word to the wise: No matter how much you wish it so, you can’t mask an operational cash flow problem by selling your way out of it. In fact, you can worsen your cash flow while growing the company.

You’ve likely heard the axiom; Businesses fail for 3 reasons: #1 Cash Flow, #2 Cash Flow, #3 Cash Flow. If your business needs to improve its cash flow, start by reading our ebook.

Have you implemented any of these strategies? If so, how has it helped your cash flow? Feel free to let us know in the comments below: