Smart Ways to Tackle Inconsistent Cash Flow

Maintaining consistent cash flow is a never-ending issue for many businesses. Yet, for many, especially SMEs, managing a steady flow of cash can be tricky. Inconsistent cash flow often limits growth, disrupts operations, and increases financial strain.

Peaks may give you the confidence to invest, but the valleys often leave you scrambling to cover essentials. Without a plan, these cycles can stunt business growth and affect your ability and confidence to seize new opportunities. But with the right strategies, you can slay this challenge.

Let’s explore some ways to reduce inconsistent cash flow and set your business up for smoother financial sailing.

Create a Clear Cash Flow Plan

Every business needs a solid cash flow plan and it starts with understanding your outflows. You and your management team know your essential costs and outflows to things like loan repayments, so use that data to build a plan that accounts for fluctuating income.

Avoid vague goals. Instead, specify exact figures to cover your expenses and other outflows over a set period. This not only keeps the team accountable but also helps you react quickly when the numbers fall short.

Pro tip: Involve your team in owning the results. Everyone should be aware of the financial goals and how their role impacts the business’s bottom line. Empowering your team fosters a collective focus on keeping cash flow stable.

Read: The Cash Flow Roller Coaster of Small Business

Drive Sales with Actionable Strategies

Now you’re in a good position to focus on your inflows. Cash inflow starts with sales. More sales means more cash (there may be a delay in collection if you offer terms), and there are three main ways to increase sales:

• Attract new customers; and/or
• Sell more to your current customers; and/or
• Raise your prices.

Let’s break it down:

• Increase marketing efforts: Choose to see marketing as an investment, not an expense and apply the same rigour to evaluating your marketing spend. A well-targeted campaign can bring in new customers and increase sales from existing ones. Plan this carefully, especially during (or ahead of) cash crunches.
• Leverage referrals: Happy customers are often willing to recommend your services. Make it worth their while with incentives for referrals (this can be as simple as a heart-felt ‘thank you’). Word-of-mouth marketing can fill the gaps when you’re low on resources.
• Cross-sell and upsell: Look for ways to bundle your offerings or promote related services. Offering better value to your current clients often translates to higher sales.

Learn how BridgePoint Group can help you finding the right strategy to manage your cash flow.

Tighten Your Payment Terms

Inconsistent cash flow can often be linked to your payment cycle. If you’re waiting too long for cash to come in, it may be time to adjust your terms. Consider shortening your credit periods or requesting upfront payments where possible. Also, be quick to send out invoices and follow up with reminders – waiting too long to invoice your customers will most likely mean waiting even longer to get paid.

Here are a few tactics to improve payment processes:

• Send invoices immediately after work is completed/goods are supplied.
• Regularly issue payment reminders. Some clients/customers only pay when prompted.
• Simplify statements with clear “Due” and “Overdue” labels, cutting out confusing payment terms.
• Consider charging interest on overdue payments to encourage faster action.
• Don’t hesitate to use a debt collector for chronically late payers.

By tightening these processes, you improve cash flow and create more predictability in your finances.

Break the “Work First, Pay Later” Cycle

The traditional model of delivering services first and collecting payments later can hurt your cash flow. Instead, look at how other businesses, like utilities or software providers, operate on a subscription basis. Could you apply a similar model to your business?

Offering clients the option to pay monthly for ongoing services not only smooths your revenue but also aligns with customer expectations. Switching to this model might take time, but it can create a more stable cash flow and help avoid those stressful dry periods.

Plan for the Peaks and Troughs

When your business is booming, it’s tempting to reinvest all your surplus cash. However, this is the perfect time to set some money aside for the quieter months. A healthy cash reserve — ideally enough to cover at least two to three months of fixed costs — gives you the cushion to weather lean periods without panicking.

And don’t forget the power of a pre-approved finance facility. Banks are more likely to grant you a line of credit or overdraft facility when your financials are strong. Apply for an overdraft or financing solution when times are good, so you’re prepared when cash flow slows down.

Case Study — Dynamic cash flow visibility: how to turn uncertainty into financial predictability

The Impact of Inconsistent Cash Flow on Business Growth

Inconsistent cash flow doesn’t just make it hard to pay the bills; it affects long-term growth. When your revenue is unpredictable, you’re less likely to invest in new opportunities, hire additional staff, or expand into new markets. It can also damage your relationships with suppliers and creditors if you’re seen as unreliable in payments.

The bottom line: inconsistent cash flow can hold your business back from achieving its full potential but you are in control. To thrive, your business needs a consistent and reliable financial foundation. You can create it. It may take time, there may be some resistance at first but if you want it badly enough, you will do what it takes.

Inconsistent cash flow is a common challenge, but it doesn’t have to limit your business growth. With some proactive strategies, you can maintain steady finances, ensure smoother operations, and focus on what truly matters – growing your business.

To make sure you’re on the right track for a sustainable growth, it’s a good idea to seek out the advice of an accountant that has business acumen. With the help of the BridgePoint Group team, you keep your business moving forward. Contact us on 1300 656 141 for help to improve your cash flow.