5 Powerful Tips To Improve Cash Flow for Your Business

By: Amita Jain on December 22, 2023
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56% of small businesses were denied funding—more than once—in the last two years due to negative cash flow.* Simply put, negative cash flow occurs if more money is going out of your business than it’s coming in.

Expenses related to raw materials, staff wages, and monthly bills can quickly add up, demanding careful cash management from business owners. Once you have your cash flow under control, it becomes easier to pay dues on time, reduce the hours spent chasing customers for payment, and have the certainty of having enough cash in the bank to grow your business.

With insights from Gartner research [1] and the experience of Catherine Hayes [2], operations director and head of finance at a UK-based digital marketing firm, in this blog article we discuss some effective strategies on how to improve cash flow and bring financial stability to your business.

"Planning for every eventuality is important for new businesses. Startups often have to grant credit to their customers without being afforded the same luxury from their suppliers. Keeping an eye on cash flow allows you to be prepared and take calculated risks for new ventures."

Catherine Hayes

Operations director and head of finance, Tao Digital Marketing

Three types of cash flows to target

Every business interacts with cash in three primary ways. Understanding these can help you better direct your efforts when managing cash flow. 

  • Cash flow from operations: This is the money that flows in and out of your business through the sale of your products or services. For instance, if you run a café, this would be the money coming in from customers buying your coffee and snacks. It’s a crucial indicator of your business health.

  • Cash flow from investing: This is the cash you invest for future growth. Say, you decide to buy a new espresso machine to serve more customers or invest your savings to accrue interest. While it may initially reduce your cash reserve, it’s an investment aimed at increasing your cash flow down the line.

  • Cash flow from financing: This involves money flowing in or out due to financing activities. For example, taking out a loan to open a second café or bringing an investor on board.

Graphic of 5 powerful cash-maximizing strategies for small businesses

Tip #1: Increase working capital to ensure you have enough funds to cover operating costs

Working capital, simply put, is the money you have on hand to cover your day-to-day operations. Using this, you pay for inventory, staff salaries, rent, or utilities. 

Because these costs can easily drain your cash on hand and create cash flow problems, it’s important to review your working capital regularly. It’s also wise to have a safety net for unexpected events, such as market slowdowns or investment opportunities. 

Here are some practical strategies to increase your working capital:

  • Engage with investors and banks for funds in the early stages of your company’s development to secure the best possible terms.

  • Increase your existing credit line.

  • Invoice immediately upon product delivery.

  • Offer early payment discounts or preannounce price increases to incentivize customers to pay promptly.

  • Ask for an advanced deposit from clients on large orders.

  • Contact customers to remind them of outstanding dues.

  • Get your customers on auto-debit (automatic withdrawals from customers’ accounts for upgrades or services).

"Getting customers on auto-debit is tricky, especially in the B2B space. Not all businesses like being on direct debit. For these cases, we have strict payment terms and automatic reminders for customers who fall behind with their payments. Consider adding interest charges to late payments for persistent defaulters."

Catherine Hayes

  • Reconcile accounts regularly to ensure accuracy in financial information. 

  • Negotiate better discounts and extended payment terms with suppliers.

  • Push out payments with suppliers when you absolutely need to, but maintain open communication with them about desired extensions so that your long-term relationship remains intact.

  • Establish an accounts receivable factoring agreement, where you sell your unpaid invoices at a discount to a third party for immediate cash who then takes care of the repayments of those bills.

According to a recent Software Advice survey, 19% of small business leaders said they plan to implement invoice financing.** This strategy uses accounts receivable (outstanding invoices due to you) as collateral to secure immediate cash. It’s a useful short-term financing option, especially when your business earnings don’t immediately translate into available cash on hand.

Software tip

Use for a clear insight into your business expenses. This software not only gives you a detailed view of your business’s everyday expenses but also allows you to control spending by setting up approval workflows.

For more on cost management, check out 3 Effective Ways to Track Expenses for Your Small Business.

Tip #2: Implement KPIs to benchmark performance and gain 100% visibility into how your cash is being used

Strengthen your working capital management by monitoring key performance indicators (KPIs). They provide visibility into not just how much cash is being used but also how effectively you’re using it. Tracking these regularly will help you make informed business decisions based on actionable data and lower operating expenses. Here are some vital KPIs to track:


Why is it important?

How to calculate?

Monthly cash burn (percentage of revenue)

To plan for future financing needs, expense control, and next-stage development

Add all monthly operating expenses, including salaries, rent, and overheads, and divide by total annual revenue. Multiply by 100 to track in percentage.

Gross profit margin

Indicates business profitability

Revenue minus costs of goods sold (COGS) is gross profit. Divide by revenue and multiply by 100 to track in percentage.

Operating profit margin (also known as earnings before interest and taxes or EBIT margin)

Measures overall financial health and operational efficiency

Gross profit minus all operating expenses, divided by revenue. Multiply by 100 to track in percentage.

Sales spend (percentage of revenue)

Indicates the amount of cash spent on sales expenses, including staff

Add all sales expenses and divide by revenue. Multiply by 100 to track in percentage.

Average customer acquisition cost (CAC)

Indicates expenses needed to acquire a new customer and shows the relative ease or difficulty of customer conversion

Add all sales and marketing expenses attributed to the product or solution provided to new customers (exclude cost to retain or upsell). Divide by new customers over the period.

Software tip

To make tracking these KPIs easier, use dashboard software. It displays your results in as close to real time as possible. Also, easy filtering options make it easy to slice and dice your data to compare current results with past’s and hold different teams accountable for their performance.

Tip #3: Divest underperforming assets and acquire strategic businesses at a good price

Gartner says that choosing winners and losers—in other words, deciding to discontinue or sell a portion of the business that is a cash drain or is unlikely to provide sufficient returns—is one of the most important and impactful choices business owners make. [1]

Routinely assess each initiative within your company to identify any venture that you need to pull the plug on. For instance, a line of business with a high customer acquisition cost (CAC) that’s not generating enough revenue is a drain on cash.

At the same time, look for opportunities to buy strategic businesses or assets at a discounted price. It could be an underperforming business that is a strong strategic fit for you. Keep an updated list of such potential acquisitions, which if were to become available at an attractive price, could create a once-in-a-lifetime opportunity to boost your cash position.

Our recommendation

Consider “acqui-hire” strategies. It involves acquiring small teams that bring high strategic value. It’s used by tech giants like Google to grow business without overspending. For example, buying a company with an exceptional product development team specializing in advanced analytics.

A certified financial planner (CFP) or an accounting firm can assist you in creating a merger and acquisition plan and look for the right opportunities for your needs.

Tip #4: Improve your operations by creating efficient workflows and utilizing technology

Improving business processes makes your workflows more efficient and cuts unnecessary costs. This involves identifying and removing redundant steps or utilizing technology to transform the way a task is completed.

To do this, start by reviewing your current processes. Look at how things are being done and pinpoint areas that need to be fixed. This is a crucial step before implementing new technology or automating tasks. 

A good hack to improve processes for small businesses is to adapt proven techniques and workflows used by larger businesses in your industry.

Once you’ve identified areas for improvement in your workflows, consider using technology to improve these processes. Robotic process automation (RPA) is one such simple technology you can use to improve the efficiency, speed, and quality of repetitive tasks, such as matching invoices with purchase orders or generating reports by pulling data from various databases. This not only minimizes human errors but also frees up staff for more important or strategic tasks.

Software tip

Use business process management tools to map your workflow. They provide a clear visual representation of current processes, making it easier to identify bottlenecks and redundancies. Additionally, many of these software also allow you to automate repetitive tasks using RPA and other techniques.

Tip #5: Reevaluate your best customer segments and pricing annually

Sustaining and enhancing revenue is vital to run a successful business. One way to maximize your revenue potential is by focusing on your most profitable customer segments and reassessing your pricing strategies. 

Your ‘best’ customer segment is essentially the most lucrative in your target market. To identify this segment, use customer personas developed by your marketing and product teams. Evaluate the profits generated from each segment and prioritize those that yield the highest returns.

It’s a good idea to steer clear of segments where competition is fierce and the cost of acquiring a new customer (CAC) is high.

Next, look at your pricing model. Check if you could boost earnings by providing more value to your top customer segment. Studies indicate that many existing customers prioritize product quality, seller expertise, and responsiveness over price[1]. You could charge more for your existing products if you combine what your target segment desires most with your offerings.  Remember these factors when rethinking your pricing:

  • Communicate any price changes to customers early and clearly. A survey by Software Advice shows that businesses that inform their customers about price rises in advance were more than seven times as likely to see an increase in unit sales, as well as improvements across several performance indicators than those that do not.***

  • Analyze how your pricing compares with your competitors for your best customer segment. This can reveal opportunities for price increases or bundling strategies that generate more revenue.

  • Tailor your products or services for specific industry segments, allowing you to command higher prices for niche offerings.

  • Offer free product trials to justify higher prices.

Maximizing cash flow: A strategic move

By implementing effective cost and cash optimization strategies, you prepare your company to survive and thrive in good times and bad. In summary, small business owners who seek to improve cash flow should:

  • Combine disciplined working capital management with cash monitoring by tracking the right KPIs.

  • Divest underperforming assets by terminating nonstrategic initiatives and acquiring strategic businesses at favorable prices.

  • Improve operations by simplifying processes and using technology to reduce cost and increase productivity.

  • Focus on the most profitable customer market segments and reassess pricing to maximize earnings.

Here’s a quick snapshot of the tactics discussed above, along with desired outcomes and actions needed for each:


Desired outcome

Action to take

Boost working capital

Ensure sufficient cash to meet financial obligations.

Negotiate better terms with investors, banks, customers, and suppliers; increase credit line.

Monitor KPIs

Gain 100% visibility into cash flow.

Regularly track metrics like monthly cash burn, profit margin, and sales spend.

Enhance business portfolio

Remove cash-draining assets and increase cash-enhancing assets.

Sell off non-profitable businesses; acquire underperforming strategic businesses at discounts.

Simplify operations

Increase efficiency of workflows to reduce cost and improve productivity.

Review and improve current processes; use automation tools like RPA where they can save costs.

Reconsider customer segments and pricing

Identify customers contributing more to profits and pricing that maximizes profit.

Identify the most profitable customers; avoid customer segments with high CACs and low margins; increase pricing where customers highly value your offering.

Maximizing cash flow isn’t an overnight task. It’s a strategic decision that requires careful planning and execution. But with the right tactics, you can ensure your business remains afloat all seasons.

Survey methodology

*Software Advice’s Financing Survey was conducted in April 2023 among 458 business leaders at U.S based small to midsize businesses who have role(s) in obtaining financing within their organization. The purpose of this survey was to learn about the challenges they face attaining traditional financing options and explore if they’re turning to alternative funding to finance operations, investments, etc.

**Software Advice’s 2022 Embedded Finance Survey was conducted in December 2022 among 335 U.S business leaders who were considering using or already offering a form of embedded finance to explore what types of embedded finance they utilize, how it impacts their business, how they partner to extend these services, and more. Respondents were screened to confirm that they had used embedded finance in some or that they were considering using within the past 12 months.

***Software Advice conducted this survey in July 2022 among 303 retail business leaders to learn more about how they have changed their pricing strategy in light of inflation, and whether and how they communicated those changes to their customers. All respondents indicated that their business had raised the price of one or more products in the past 12 months. “Successful retailers” refers to the 109 respondents who informed customers about price increases and saw increased unit sales following the price increases.