5 Ways to Improve Your Business Cash Flow

I believe you will agree with me that cash is King

But do you know why?

For your small business to thrive, cash is essential as it is needed for your day-to-day business operations. 

It is the working capital needed to keep the business functions running; for procurement, marketing, advertisement, subscriptions, salaries and basically to meet all of your day-to-day obligations.

Cash flow on the other hand refers to the movement of money in and out of a business.

A Positive cash flow means that a business has more money coming in than going out, while negative cash flow indicates the opposite. In order to stay afloat, it is essential for your small businesses to have a strong handle on their cash flow.

Why because it is critical to ensure there is sufficient cash available for these expenses. A lack of which may impair the business activities. 

Imagine not being able to pay your suppliers when it is due, it certainly can affect your relationship with the counterparty and if this persists, it would affect the future business arrangement. This could also have multiple effects like lost reputations, an inability to meet up with customer's demands, and reduced profitability due to a decrease in revenue.

Most structured businesses/companies have a cash management policy, they weigh the options between having excess cash at hand or having minimal cash due to high investment in inventory or better still, a balance between the two.

And that middle point that trades-off risk and reward of keeping or not keeping sufficient cash in your business is where you need to be.

You don’t want to be in a situation where you are unable to settle your business obligation at the same time, you can't afford to be with excess cash and lose out on the returns you can get from investing the money.

Also, it is important to know that effective cash flow management allows small businesses to maintain cash reserves, which can provide a cushion in times of uncertainty or slowdowns.

Now, let's look into ways you can manage your business cash flow

1. Debt management: To gain control of your cash flow and ensure promote the payment of receivables from your debtors, consider implementing new policies such as offering discounts to customers who pay early, and using electronic payments for bill paying especially in a situation where paying my cash is difficult.

2. Implement cost-cutting strategies: Identify areas where you can cut costs without affecting the quality of your products or services. This includes negotiating with suppliers for better prices, using energy-efficient equipment to lower utility bills, or reducing waste. Cutting costs can help you increase your profits, which in turn boosts your cash flow.

3. Conduct customer credit checks to reduce bad debt: Before selling goods on credit, ensure to conduct a credit check. If the client has poor credit, you can safely assume that you won’t be receiving payments on time. This way, you can predict to a high degree when cash will be flowing into the business.

4. Improve your inventory to prevent tying your capital: Take an inventory check and make a list of goods that aren't moving at the same pace as your other products. This way, you can reduce purchasing more of that item or better still put them at the top part of your shelf where it can be easily seen to improve its sales. Alternatively, you can get rid of it by selling it at a discount. 

5. Save excess cash flow in high-interest savings accounts: This will ensure you have a liquid cash position for when the need arises. At the same time, you get to earn returns from it contrary to the demerit of keeping cash.

Understanding the nature of your business cash flow is critical for you as a small business owner as it enables you to make informed decisions about the business finances. 

This will help you prioritize spending, manage debt, and make investments that support the long-term health of the business.

In conclusion, cash flow management is a critical component for your business to succeed. By tracking it and making informed financial decisions, it will ensure that they have the resources needed to operate effectively, meet its business obligations, and invest in its growth. 

If you're a small business owner in Nigeria, now is the time to start taking control of your cash flow and securing your financial future.