How to Improve Cash Flow: 11 Tips Every Small Business Can Use

It’s the beginning of a new month. Your calendar’s packed, deadlines are piling up, and yet the numbers aren’t adding up. You notice that cash flow’s tight, leaving you to wonder: where did all that hard work go? When it comes to improving cash flow, you’re not alone. 

Inflation’s been making headlines lately—2.4% in Canada, 3.0% in the U.S. But it’s nothing new. Rising costs can sneak up on you at any time, and your cash flow is often the first thing impacted. Without healthy cash flow, it’s hard for any business to operate during those economic ups and downs. That’s where planning comes in.

In this guide, we’ll break down:

🌟 KEY TAKEAWAYS

Improving cash flow isn’t just about selling more. Reducing expenses, optimizing payment terms, and smart inventory management are just as important.

Income and expenses both matter. Every dollar in and out impacts your cash flow, and accurate cash flow monitoring keeps your business prepared for changes and opportunities.

Stay proactive, not reactive. Make cash flow management a regular priority. Review your strategies often so you can spot issues and adapt before challenges arise.

What is cash flow?

Cash flow is the movement of money in a business. It’s the money that comes into a business and the money that leaves it. Positive cash flow (more money in than out) is what enables a company to continue operating.

Here are a few examples of what this can look like for your business:

Having adequate cash flow means bringing in more money than you’re spending. Or, in accounting speak, “more inflows than outflows.” This balance determines your overall cash position, which can either be positive or negative.

To find out whether your cash position is positive or negative, just run this simple equation—if the result is above zero, you have positive cash flow; if it’s below zero, it’s negative.

Are negative cash flows a red flag? 🚩

Noticing a dip in your cash flow? It’s natural to worry about how it might affect your business. But a negative cash flow isn’t always a bad sign, especially if it’s temporary or expected.

Think of an ice cream shop in the winter. You don’t open your doors expecting to sell out of your award-winning mint chocolate chip when the temperature is colder than your deep freezer. Instead, you plan for the dip in sales and adjust your winter spending and summer promos accordingly.

That said, a consistent negative cash flow is a red flag. Managing your cash flow regularly—not just when you’re worried—can help you prevent this. 

Why should improving your cash flow matter to you?

​​Ask any financial expert and you’ll hear the same thing: A profitable business can still face insolvency if cash flow is mismanaged.

That’s because profit doesn’t automatically mean you can cover all of your obligations at the right time. Sometimes, cash reserves begin to run low, and that can make any business sweat.

If your business is seasonal or experiences seasonal fluctuations, you'll likely want to find ways to increase revenue during the peak season to help cover costs year-round. You may also look at strategies to reduce expenses during the off-season.  

Regardless of the reason for improving cash flow, the underlying reason will always be the same: staying in business. And in order to do that, you need to bring in more money. 

Types of cash flow

There isn’t just one type of cash flow. If you run a business, you’re likely dealing with the 3 main types—operating, investing, and financing—even if you didn’t know them by name.

Now’s the time to learn them, and more importantly, why they matter. 

Take a look at the breakdown below to better understand the types of cash flow and their impact on your business. 

1. Operating cash flow

This refers to the money moving in and out of your business from its core activities.

Example: The neighborhood coffee shop’s earnings from selling lattes and homebaked pastries, while paying for ingredients, hourly wages, insurance, and utility bills. The cash coming in from sales, minus the cash going out for day-to-day expenses, would be the operating cash flow.

2. Investing cash flow

This is the money a business spends or receives from buying and selling long-term assets, such as equipment, property, or vehicles.

Example: The coffee shop buys a vintage delivery truck to attend farmers’ markets across the province. This purchase is considered part of the investing cash flow, as it represents money spent on a long-term asset to help the business grow.

3. Financing cash flow

This refers to the amount of cash the company has generated or used in its financing activities.

Example: The same coffee shop takes out a loan to help finance another location and pay off a small existing debt. The money coming in from the loan and going out as a repayment is part of the shop’s financing cash flow. 

6 ways to improve cash inflows

Improving cash flow doesn’t have to be complicated or time-consuming. Here are 6 ways to increase your cash and bring in more sales, while strengthening customer relationships.

1. Upsell, upsell, upsell

Most businesses underutilize one of their most valuable assets: their existing customer base, even when they have a loyal following. That’s where upselling comes in.

When upselling to existing customers, take a look at their purchase history via customer receipts. Once you know their typical orders or information, reach out. Offer them services or goods that they’d be interested in alongside their usuals.

This does two things. First, it gets you a sale you may not have had. Second, it tells your customers that you’re paying attention. Which, in this economy, goes a very long way.

2. Increase your prices

Already have a customer base? Great. That means people are coming to you because they need your services. Consider this a sign to examine your pricing strategies. Providing your customers with a high-quality product should be your first priority. As long as you can do that, you can (usually) justify the cost. 

Price increases are just one part of a larger strategy. Your marketing efforts should be based on the reasons that customers purchase your items. If you don’t clearly highlight why your product is worth the price it’s set at, it can adversely affect sales.

One of the strongest reasons to use this cash improvement strategy is that it doesn't affect operating costs. When you increase the price of a product you already sell, you aren’t creating an additional expense. This helps improve your cash flow right away, as long as the products continue to sell.

3. Sell in every possible way

When you’re trying to generate income, you need to be able to sell in every way possible. For brick-and-mortar stores, this means increasing online activity, including sales, engagement, and overall presence. 

Most companies do a significant amount of business online these days, and some are only online. So, if you haven’t set up online sales yet, you’re likely missing out on a key channel for revenue.

You can follow the same logic for online-only businesses that aren’t selling in person. They might be missing out.

To maintain a healthy cash flow, sell your products wherever your customers are—both online and in person. Expanding your reach helps you stay competitive and gives your business the best chance to thrive.

4. Convince customers to pay faster

If your business has unpaid invoices, you’re missing out on possible cash inflows. Managing accounts receivable is a key part of maintaining healthy cash flow. If you’ve sent invoices that have no response or struggle with late payments from clients, then it’s time to make paying more appealing. 

You can do this in several ways, but one that always works? Discounts. 

Offering early payment discounts to customers is a great way to make money quickly. Here’s how it works:

Once you’ve found the right amount, you’ll see cash coming in quickly. Who can turn down savings when everything else seems to be rising in price?

Other ways to encourage fast payments include:

5. Tend to your accounts receivable

Many businesses miss out on revenue by letting unpaid invoices pile up. Tapping into your accounts receivable is a proven way to boost cash flow. The money tied up in AR belongs in your bank account.

But the collections process isn’t always easy, especially when you want to preserve strong customer relationships. Staying on top of your AR ensures you get paid, and often, all it takes is a friendly reminder for customers to pay on time.

When you follow up with clients, it lets them know you’re paying attention—and they're reminded of what they owe. Sometimes that simple interaction is enough to increase business and incoming payments. Instead of handling reminders manually, consider setting up automatic payment reminders with your invoices in software like FreshBooks to make collecting what’s owed easier.

6. Sell off aging inventory

Inventory management  isn’t always easy, resulting in an excess stock build-up. This might be from overordering or aging products. Regardless, it’s never helpful for your cash flow.

Too much inventory ties up cash and hurts your bottom line. Discount it strategically to free up funds while still earning a profit and moving products faster.

Set prices that will still yield a profit, but allow you to sell quickly. Most times, excess inventory is unnecessary, so selling it at a discounted price might just the way to generate cash that you wouldn’t otherwise see.

5 ways to manage cash outflows

So far, we’ve focused on ways to increase cash inflows. Now, let’s look at the other side—reducing outflows. These tips can be just as effective for improving cash flow.

1. Lease, don’t buy

While owning things is appealing, it isn’t always the best strategy. Leasing can reduce your expenses and improve your cash flow if your lease terms are favorable.

Owning your assets is often more expensive in the short term due to upfront costs, especially if you finance a purchase or buy new. You have to pay much more when you own something. This is due to the associated costs of ownership. What’s more is that these assets tend to depreciate in value over time. 

Some leases bundle certain costs like insurance, maintenance, and repairs into your payments, which can protect your cash on hand, too.

Leasing doesn’t build equity, but it can reduce your immediate costs.

2. Ask about discounts

If you’re considering offering discounts to your customers, it’s likely that your suppliers are as well.

But discounts aren’t always displayed for everyone to see. Sometimes, they’re reserved for customers who are aware of them or those who specifically request them. If you have a good relationship with a supplier, ask them what they can do for you. The worst thing they’ll tell you is, “Unfortunately, nothing.” Hey, we’re all trying to save money, after all. 

3. Evaluate your expenses 

More often than not, businesses' expenses are too high. Evaluate costs regularly to determine where you're spending too much. It's one of the fastest and easiest ways to reduce costs and decrease your cash outflows. 

Here are a few strategies:

4. Buy in bulk

This might seem like a tactic that only works for large companies, but it isn’t. Small businesses should also consider purchasing their materials in bulk, as it’s one of the most effective ways to reduce expenses. 

Large companies do it for a reason. Buying in bulk can reduce expenses over the long term, depending on how much you buy. 

Unable to meet minimum purchase requirements? Find help. A partner, or several partners, to go in on bulk buys is a great way to reduce overall expenses. When you buy in bulk, the price per item is reduced. This means that even with shipping costs for a larger order, you’ll normally pay a fair amount less.

5. Look for ways to boost efficiency

Given the rise of AI and its impact on businesses and freelancers, you may already be using AI in your day-to-day to improve efficiency. And for good reason. When you run more efficiently, you spend less—cutting costs on labor, wasted materials, and time-consuming manual tasks.

For products, improving efficiency could mean streamlining production or using less expensive materials. For services, it often means automating repetitive work or optimizing processes, so you spend less on labor and overhead.

The effect of improving efficiency is compounding. It improves your bottom line as well as your cash flow. Think about it this way: The more efficient you become, the more products and services you can provide in a shorter amount of time. You spend less while making more. 

Efficiency isn’t just for large corporations. For small businesses, simple moves toward efficiency can quickly reduce cash outflows.

How to understand and track your cash flow

When you’re running your business, understanding and keeping track of your cash flow is essential if you want to keep operating. It makes it clear where your money is coming from and where it’s going. 

More strategies to help: 

Maintaining a cash flow statement

Your cash flow is tracked through a cash flow statement, one of the main financial statements alongside your income statement and balance sheet. This statement shows all the cash coming into your business (inflows) and all the cash going out (outflows) over a specific period of time.

Based on the 3 types of cash flow, statements are divided into 3 sections:

Financing activities: Money related to borrowing, repaying loans, or owner investments.

How to forecast and track using cash flow ratios

Cash flow ratios are easy tools that help you understand the financial health of your business. Ultimately, they measure how well your business can meet its short-term obligations (like paying bills) using the cash and assets you already have. 

Two of the most common ratios to track are called the current ratio and the quick ratio (acid-test ratio). Here’s how they work:

Then we’ve got the quick ratio—aka the acid-test ratio. 

Example: Simple cash flow calculation

Think that calculating cash flow is a task best suited to the pros? Think again. Here’s an example of how to start putting together your own cash flow calculation.

And remember: The more proactive and organized you are with small-business tasks like expense management, revenue tracking, and forecasting, the easier and more accurate your cash flow statement will be. 

5 ways to prepare a cash flow budget or forecast

Now that you know what a cash flow calculation looks like, the next step is learning how to plan ahead with a cash flow forecast. This will help you predict how much money will flow in and out of your business in the months ahead. 

Here’s how to create one in 5 simple steps:

Recap: your cash flow action plan

Improving cash flow matters for every business—even profitable ones. But it’s not just about earning more. Often, the smartest way to strengthen cash flow is by spending less and planning ahead.

Taking time to understand your cash flow statements and forecast the months ahead can make a major difference in your business’s financial health.When inflows slow and spending continues, cash flow gets tight. That’s when expenses start to outweigh income. Forecasting, monitoring, and applying any of these 11 strategies can help keep your cash flow steady all year—not just when things feel strained.

Want to dive deeper into conquering cash flow? Download our latest eBook to learn more about what cash flow is and why it matters; how to keep track of it; how to manage income and expenses; and what to do if you find yourself in the red.

FAQs about Improving Cash Flow

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