Effective cash flow and working capital management are critical for the financial health and sustainability of any business. As leaders, understanding how to optimize these areas can have a significant impact on the overall success and growth of the organization. By mastering these financial practices, leaders can navigate economic uncertainties, seize opportunities, and maintain a strong financial foundation for their organizations.
Below, 20 Forbes Finance Council members share valuable strategies leaders can employ to improve their cash flow and working capital management. These strategies can help leaders enhance liquidity, reduce costs and make informed decisions that drive long-term profitability.
1. Decrease Liabilities And Improve Assets
To improve cash flow, decrease your liabilities and improve your assets. Reducing the costs and expenses is a target even when your business is doing well. The key is to improve your cash flows. Check your liabilities and turn them into assets that generate cash flows. You can sell your unused lands or vehicles to generate short-term cash flows. Meanwhile make promotions on sales to add new short-term clients. - Burak Arkun, Tailwind Airlines
2. Conduct A Bottoms-Up Budget Review
I find that if you do a bottoms-up budget process with monthly forecast reviews, you can find out what expenses are not needed that can be immediately reduced by terminating vendor contracts that are no longer required. Also, these monthly meetings help determine which lower-priority projects can be delayed, leading to a slower ramp-up of vendor payments which generates in-year expense savings. - Nick McGuire, DataLink Software
3. Open More Payment Channels
Opening more payment channels and honoring buyer payment preferences is always a smart strategy to increase cash flow. Suppliers with an automated credit card acceptance strategy, for example, receive guaranteed funds while offering their buyers rebates and float. Overall, automated AR processes offer customers the digital payment channels they prefer, speeding cash flow and reducing payments lag. - Justin Main, Billtrust
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4. Automate Payments And Invoicing Systems
When a supplier isn’t paid on time, B2B companies shouldn't assume there is an issue with the payment but rather look earlier in the order-to-cash process. This helps uncover issues that stem from when the interaction with the buyer first began and an invoice was created, such as inputting the wrong price. Automated payments and invoicing systems can remove complexity and improve cash flow. - Brandon Spear, TreviPay
5. Leverage Refinancing Assets
Business leaders can increase their revenue while minimizing associated costs, maintaining comprehensive cash flow reports and adopting financial models and forecasting tools to predict future cash flows. I personally leverage refinancing assets to generate working capital for our business. A clear example will be selling a used company car to staff. It is simply a win-win for all parties involved. - Tosin Osunkoya, Comercio Partners Limited
6. Use Strategic Forecasting
Leaders can optimize cash flow and working capital management through strategic forecasting, efficient receivables and payables management, cost control and leveraging technology. By prioritizing these practices, they pave the path to financial stability and growth. - Michael Foguth, Foguth Financial Group
7. Streamline Inventory Management
Monitoring cash flow and working capital is critical to ensure optimal financial operations for an organization. There are myriad factors, but focusing on streamlining inventory management, optimizing capital expenditures and conducting regular financial analysis including better vendor management will be key. Leaders would need to tailor strategies as per the growth vision for the organization. - Parijat Banerjee, LatentView Analytics
8. Maintain An Updated Cash Flow Plan
I recommend business owners maintain an updated cash flow management plan. Scenario planning will help determine what is needed to move forward today and earmark where funds may be needed down the road. A clear financial forecast, combined with a trusted relationship with a business banker or financial advisor, will help owners make the right decision for their business. - Jenn Flynn, Small Business Bank at Capital One
9. Avoid Hiring Externally
Managing cash flow and capital effectively is key to financial health and is particularly important during this VC winter. Underrepresented founders, who always had to do more with less, are great examples of leaders looking for ways to improve cash flow. Prudent practices like doing things internally instead of hiring external experts and minimizing fixed costs can create significant savings. - Lise Birikundavyi, BKR Capital
10. Negotiate Payment Terms With Vendors
Developing projections for future cash flows and making informed decisions about investments and expenses based on this information is the most impactful cash flow management skill to develop. As a company, we emphasize negotiating payment terms with vendors to optimize cash flow. By carefully managing payment terms, we avoid cash shortages and take advantage of discounts for early payment. - Elie Nour, NOUR PRIVATE WEALTH
11. Work With An Accountant
The most important thing leaders can do is work with their accountants to understand the current situation (money in vs. money out) versus where they want to actually be. Once you have an understanding of that, you can then better pinpoint what changes need to be made in your decision-making to achieve your goal. If you want to make a decision, come back to the model and it shows you the effect. - Evan Jehle, FFO LLC
12. Understand Cash Required
Cash flow is quintessential to growth. Managing cash flow is best accomplished by understanding the cash required, net of any debt proceeds. Building cash metrics and continually reviewing performance creates synergies. It is possible to grow out of business. Establishing cash goals and tracking performance, while knowing the total cash needed, will help businesses chart course, or course correct. - Matthew Goldston, ABIP Advisors
13. Improve Customer Account Management
In today’s volatile market environment, leaders need to remain laser-focused on business relationships. Customer account management is crucial, and direct communications can avoid delayed payments. At the same time, working closely with key vendors and managing outgoing payments based on priority is a way to maintain cash flow steady. - Omar Choucair, Trintech
14. Proactively Manage Inventory
Executives can optimize working capital management by proactively managing inventory, negotiating payment terms and improving receivables. Effective communication with stakeholders, risk management and prudent financial planning can also ensure a sustainable cash flow position. Also, they should consider the ways in which technology may be able to aid in automation and cost reduction. - Jeffrey Bartel, Hamptons Group, LLC
15. Restructure Contingency Plans
Execute definitive plans with targeted metrics for each area of the business to maximize its operating performance. This should lead to greater balance sheet strength. Structure contingency plans so that variable expenses can be reduced quickly if the top line suffers. Structure action plans to grow expenses only if targeted top-line metrics are achieved and forecasted results are attainable. - David Samuels, DrFirst, Inc.
16. Speak With Your Vendors
Don’t be afraid to talk terms with your vendors. Ask if they can extend terms beyond their standards, like net 45 or net 60, or see if they are open to monthly or quarterly payments instead of upfront payments. You may have to trade off in price, but the trade-off may still be cheaper than other types of financing in the market. - Michelle DeBella, JumpCloud
17. Follow These Nine Steps
To improve cash flow and working capital management, leaders should: 1. Forecast cash flows accurately; 2. Streamline invoicing and payment processes; 3. Offer early payment incentives; 4. Optimize inventory levels; 5. Negotiate with suppliers; 6. Monitor customer credit; 7. Access short-term financing; 8. Review and reduce expenses and 9. Invest surplus cash in short-term, low-risk assets. - Pedro Langa, SPACE PERSPECTIVE
18. Make Overdrafts A Fallback Option
These can be managed through the proactive understanding of customers' buying and payment patterns, an automated credit control system finely woven with a superlative vendor relationship leverage. Having overdrafts as a fallback option may be cost-effective as they are based on utilization and can be used as a short-term measure to augment seasonal gaps in working capital and cash flow. - Oluwatoyin Aralepo, Mastercard Foundation
19. Embrace The 'Cash Flow Trifecta'
Leaders can optimize cash flow by embracing the "Cash Flow Trifecta": 1. Streamline receivables with efficient invoicing and proactive follow-ups; 2. Negotiate better payment terms with vendors and 3. Prune underperforming assets, redirecting resources to higher-return investments. This holistic approach ensures smooth, agile working capital management. - Luis Marinelli, Vana
20. Improve Budgeting And Forecasting
There are more tools than ever in the market to assist you with planning and businesses should begin to start using them to more effectively plan for their cash needs. Another important factor is determining any risk and keeping adequate cash reserves in the business or a captive insurance entity to make sure that the cash is available when it is needed. - Shlomo Halberstam, Bottom Line Concepts LLC
