Business Financial Strategies to Increase Cash Flow
Whether you operate your own professional practice or help run an enterprise-level organization, finances are never easy to dial-in. So in this post, we share some business financial strategies to help increase cash flow and maximize revenue. Let’s jump right in.
Invest in Capital Equipment Wisely
Equipment are the things a business uses during the course of business, such as a computer to manage inventory and cash flow, or the ball point pens used by the secretary to write phone messages. This equipment adds up quickly and it can destroy a cash flow with ease.
Capital equipment should be purchased wisely and for long term use, which helps with cash flow. Repairs are typically cheaper than an outright purchase, so opt for equipment that is high quality, easy to maintain, and has a good repair network. This will save on expenses that affect cash flow.
Likewise, avoid constant capital equipment purchases. Nothing can ruin a cash flow quite like capital equipment purchases that are unnecessary. Computers quickly become out performed, but this does not mean a new computer should be purchased every year. This needs to be stretched out to the maximum extent possible. Purchase new capital equipment only when the costs of maintenance and the costs of using the equipment exceeds the value. For instance, if a computer becomes too old, it will slow down employee output that is expected to be higher because of new technology. Planning this out is not difficult and can make a positive impact on cash flow.
Pay with Cash When Possible
It is nearly impossible to avoid financing some aspect of a business, but using too much credit too often is devastating to cash flow. Paying the principle and interest on a loan can become onerous, particularly if every aspect of the business depends on financing. To the extent possible, use cash for purchases and payments. Many vendors and services will offer a discount to a business that pays in cash.
If a credit card is used, it is important to use one that has positive benefits to the business. It is also critical that charges on a credit card account are paid off before interest is applied. This can help with purchases that require a credit card, and some do require it, and minimize the potential damaging effects on cash flow. For a list of the best small business credit cards, see this page at MoneyCrashers.com.
Optimize Billing Practices
Fulfilling customer billings is one of the most challenging yet important aspects of sustaining a solid cash flow for a business. It’s vital to establish sound billing practices that help to ensure timely billing and payment fufillment. This can be increasingly difficult for service providers as well as health and medical organizations.
For example, Federally Qualified Health Centers (FQHCs) are community established organizations that offer care to local area at more affordable rates. FQHCs are renowned when it comes to patient billings, as many patients are slow to fulfill their payments. With the help of FQHC billing specialists, the right resources and practices can be put into place to better ensure payments are fulfilled and cash flow keeps coming in.
Invest the Cash on Hand
Every business should have a budget that includes investing cash received from accounts receivable. The investment does not need to be grandiose or involve a broker, which can be expensive in themselves, but rather look to banks that offer interest bearing accounts that have a higher interest rate than a simple checking account. A money market account can be a wise choice for a business, as the investment is not locked up for a period of time like a certificate of deposit account. A money market account typically has a fee for removing cash, but this varies from bank to bank.
Wise and conservative investments on a large portion of the cash on hand will generate positive cash flow. The return on investment will grow as more cash is invested, which is why a budget with this category is a wise move for any business. A return on investment is certainly a cash flow source, so this should not be overlooked.
Make Changes to Payroll
Payroll can be expensive to the point where it becomes drain on any positive cash flow realized. Even if payroll is not outsourced to a contractor, the man hours needed to compute every payroll event is expensive for a business. In this light, reducing payroll burdens is important. Consider switching payroll to 24 events, rather than the 26 events that many businesses utilize. Cutting down on two payroll events can generate a tremendous influx in cash flow. However, it is important to also ensure that payroll is paid according to state and federal law, so consulting with an attorney is wise in this circumstance.
Payroll is one area where technology can truly make or break a cash flow. Payroll software can be tremendously beneficial, or horrid, so careful selection is important here. Likewise, moving from ACH debits into employee’s bank accounts over the traditional paper check has huge savings potential. This can help with keeping a positive cash flow.
Many of the tips that can improve cash flow require a business to be careful when proceeding. In contractual, employee, or debtor situations, a business should consult with it’s attorney to ensure it does not violate the law with its agreements or wind up with a bad contractual agreement that opens it up to lawsuits.
Most of the tips here are routine matters for a competent business law attorney, so it is often worth the expense to consult with one. It is also a good business practice to negotiate with every creditor, vendor, or supplier to help establish depedable billing practices that can help maximize revenue and increase cash flow. Some will freely negotiate and others will not negotiate, but it never hurts to inquire about negotiating. If done correctly, this can make a large impact on cash flow, while cementing good business relations.