Cash Flow Solutions for the Modern Business

To keep any business running, you need cash flow — the lifeblood of an organization. Whether you're a startup or a large multinational corporation, it's essential to have a solid way to manage and improve your company's cash flow.

The 6 types of cash flow

There are six main types of cash flow solutions for businesses:

1. Cash flow from operations

This is the most common type of cash flow and includes money generated from the day-to-day operations of your business, such as revenue from sales, fees, and other sources. You can increase the cash flow from operations by managing your expenses and improving your margins.

2. Cash flow from investing

This type of cash flow comes from the sale of investments, such as property or equipment. Some investments include stocks, bonds, and mutual funds. If you have a portfolio of investments, you can generate cash flow by selling some of your assets when the market is favorable. Your business can also use this type of cash flow to finance expansion projects or make other investments.

3. Cash flow from financing

This type of cash flow is generated from sources outside your business, such as loans, lines of credit, and equity financing. You can get the capital you need to grow your business by securing financing from lenders or investors, however, it's important to note that this type of cash flow can also lead to debt if not managed properly.

4. Free cash flow

Free cash flow is cash that’s available after you've paid for all of your expenses and made all required payments on your debt. This is money that’s available to reinvest in your business or pay dividends to shareholders. You'll need to subtract capital expenditures from operating cash flow to calculate free cash flow.

5. Unlevered free cash flow

Unlevered free cash flow is similar to free cash flow, but it doesn't consider the interest payments on your debt. This is a helpful metric to use when you're considering taking on new debt or equity financing. To calculate unlevered free cash flow, you'll need to subtract capital expenditures and interest payments from operating cash flow.

6. Discounted cash flow

Discounted cash flow is a valuation method that estimates an investment's future cash flows and discounts them back to present value. This is a helpful tool when considering investments as it allows you to compare different opportunities and make decisions based on their expected returns.

How to improve your cash flow

There are several ways to improve your company's cash flow:

• Offer discounts for early payment: This can incentivize customers to pay their invoices more quickly, which will, in turn, free up cash that can be used for other purposes. Depending on your business, you may want to offer a small discount for payments made within 30 days or a more significant discount for payments made within 15 days.
• Extend payment terms to suppliers: This can give you more time to generate revenue and pay your suppliers. However, it's crucial to only extend payment terms if you're confident you'll be able to make the payments on time. Otherwise, you may damage your relationship with your supplier.
• Reduce inventory levels: Carrying too much inventory can tie up cash that could be used for other purposes. Reducing your inventory levels can free up cash flow and improve your working capital position.
• Invoice factoring: This type of financing is where you sell your invoices to a lender in exchange for cash. This is an easy way to get cash without taking on debt. Invoice factoring also allows you to protect your credit score, as the process is a sale rather than a loan.
• Use accounting software: This can help you track your expenses and income to understand your cash flow better. It can also help you automate payments and invoicing, saving you time and money.

Final thoughts

Cash flow is an essential part of any business, and it's something that you should monitor regularly. With never-ending expenses like payroll, inventory, utilities, and marketing, it can be difficult to keep cash flow positive. However, using some of the abovementioned strategies can improve your cash flow and keep your business running smoothly.