The Most Overlooked Ways Businesses Can Improve Cash Flow


Cash management is critical at any stage of the business, but it can be a huge challenge for new businesses and business owners. Businesses have to manage how they receive cash, leverage favorable contract terms, pay for products and services, manage cash flow and ensure a positive cash flow at all times. Business owners must stay prepared for any eventualities and ensure continuing growth by handling cash flow management better. Here are some ways to do so.

Using Forecasts

Every business should have a cash flow forecast of at least six months and preferably 18 months. Preparing such forecasts allows businesses and their owners to know where their cash comes from, and will come from in that period, as well as the obligations they have within that time frame. Knowing both of these things ensures they are prepared for when things change and have enough time to take corrective measures before things get out of hand.

Business leaders are also urged not to make decisions based on how much money they have in the bank. Instead, they should use cash inflow and outflow timings to make the right business decisions.

Leverage Available Tax Credits

The government has put in place various tax incentives meant to encourage innovation, employment, and entrepreneurship. Many business leaders overlook these tax incentives as a way of managing their can flow. They either do not know these incentives and credits exist or do not think they qualify for them.

The best thing about local, state, and federal tax incentives and credits is that they are completely separate from customer payments. They can, therefore, be extremely helpful during periods of slow business, economic volatility, and reduced cash flow.

One of the most overlooked tax credits is the research and development (R&D) tax credit. Businesses that design new products or processes or those that improve them to come up with new or better ones can qualify for these credits.

Calculating how much credit you can get is an often complicated process, and it is best to hire companies that provide R&D tax credit calculation services in your area. They will find all expenses that you can claim as credit and potentially put thousands or tens of thousands of dollars back into your bank account.

A Break on Employment Taxes

Another credit that many businesses do not know exists is the employee retention credit (ERC). This credit was established under the CARES act, and it is meant to encourage businesses to retain employees. Businesses can use it to boost their cash flow, but that can only happen if they understand how it works.

Businesses can amend their payroll tax returns to get refunded for those that qualify for credits. Staying up to date with this credit is important because it is amended all the time.

Establish Better Contract Terms Through Negotiation

Before you start negotiating your existing contracts, one simple thing you can do is make the terms of payments on your contract clearer. This is done by ensuring everyone understands when you expect payment. Many businesses concentrate on selling products but forget that good contract terms with customers and vendors can make cash flow management easier.

It is understandable for business leaders to want to sign vendor contracts as soon as they come in to get out of the way. Instead of doing this, consider reviewing the terms therein and seeing if there is any possibility of negotiating them. Doing so can help better align your outflows with your inflows to ensure there are no gaps in your payment schedules.

Another way to improve cash flow through negotiating contracts is altering your terms to provide discounts for customers who pay early. While it may seem like you are negotiating against yourself, doing this can improve cash flow from vendors who want to take advantage of the discount.

It can also help you improve your relationship with your customers as they receive a flexible payment schedule so they can decide what would work best for them.

Lease Instead of Buying

Leasing real estate, equipment, and supplies can end up being more expensive than buying in the long term, so doing this can seem counterintuitive for those keeping an eye on their expenses. Leasing instead of buying is a strategy that is best executed for short periods and until the business has enough cash to buy whatever it needs.

The benefit of doing this is that you pay a little each month or payment period instead of having to come up with a large sum of money for the purchase. This can leave you with a better cash flow position. Also, lease payments are an obvious business expense and thus can be written off when you do your taxes.

Every business goes through periods of cash constraints, whether due to internal or external factors. The most important thing is ensuring a continuing cash flow regardless of what is going on.