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Small Business Cash Flow: How to Improve It?

November 28, 2011 by Ed Becker

Cash flow and profitability are not the same thing. Understanding the difference is critical for the health (and survival) of your small business. Many small business owners run their businesses by watching there bank balances, but this can be a recipe for disaster because they are not considering key items like outstanding checks and loans.

Small Business Cash Flow is a Company’s Life Line

A strong cash flow allows a company to operate and finance day to day operations. It allows the organization pay current expenses and also plan for the future. Many unknowns exists that small business owners should plan for by maintaining a strong positive cash flow and being prepared for that upcoming crisis, whenever it hits. Now more than ever, for a business to remain viable it must improve its cash planning.

Reduce/Eliminate Expenses

Customers are purchasing less products and services and that reduction is occurring in nearly every industry. One of the most immediate ways to maintain profitability during falling revenues is by finding ways to reduce or eliminate costs. Large items such as salary, overhead and non-essential expenses are usually the first to go.

Another way companies are saving money is by shrinking inventories thus saving the carrying costs of these items. While organizations still want to have enough stock on hand to satisfy customers, if customer traffic is down then inventory can be reduced as well.

Raise Revenues

Some businesses reduce prices hoping to attract new customers. However in many cases, the cuts simply reduce cash flow and decrease profit margins. Other options include price increases which is hard to do during down turns. Instead, consider more effective measures such as introducing new products or services that appeal to new markets. This also creates great benefits in the long term once the down cycle ends.

No single strategy is the best for maintaining a strong small business cash flow, but a combination of all of these can help a business weather the storm and succeed in both the short and long term.

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