If we were to consider a business as a living person, then the cash flow would be tantamount to it’s blood. In other words, the cash flow is the lifeblood of the business, without it the business is doomed to fail. Statista’s report on the matter proves as much, with 38% of failed businesses in 2021 citing running out of money as the primary cause of their downfall. With a recession over the horizon, now more than ever businesses need to work on optimizing their cash flow. By using strategic methods such as financial analysis and cash flow projections, entrepreneurs can mitigate a great deal of potential damage to the business and save it from collapse under rising inflationary pressure. 

A great deal of effort can be put in to shield the business from cash flow problems, and it all boils down to the entrepreneur’s judgment. Of course, before making any investment in the business, it is important to know exactly what you are getting yourself into and what is the ROI. To help ease the decision-making process, let’s discuss what cash flow is, and how can the business’ processes be optimized and engineered to bolster the cash flow and keep the business healthy.

What is Cash Flow?

As defined by Expertise Accelerated, “Cash flow is the movement of money in and out of a business or organization. A company with a positive cash flow means it is receiving more money than giving it out as expenses. Therefore, a positive cash flow indicates that the business is financially stable and sustainable. On the other hand, a negative cash flow is a sign that the company is giving out more cash than receiving it, which could lead to financial difficulties.“

Simply put, cash flow is the flow of cash through the business, in the form of income and expenses. The more cash that comes in and the less that gets spent, the better the business’ financial health is. The analogy of the human body is indeed quite apt; just as the human body dies away when it runs out of blood, if there is any “bleeding” in the business’ cash flow, i.e., the business is spending more than it can earn, it will eventually run out of money and have to close up shop. 

9 Cash Flow Optimization Strategies for Small Businesses

Internally Audit the Business

The first order of business when considering financial process optimization is to first gauge the business’ present performance and workflow. This helps identify process bottlenecks and other inefficiencies and presents entrepreneurs a clear picture of what they are working with. Internally auditing the business essentially entails a complete inspection of the business’ finances, following the paper trail to figure out how exactly the money is flowing through the business and where it is being spent. This can also reveal any signs of misconduct among the staff, such as fraud or embezzlement, which are always potential risk that is better avoided than withstood. 

By mapping out the cash flow of the business, it becomes easier to draw cash flow projections, which are essentially estimates of how much the business will earn and spend in the future, based on historic patterns in the business and the current market trends. 

Reevaluate Expenses

In recessionary times, one of the most crucial things to keep under control are the business’ expenses. After mapping out the business’ finances and drawing cash flow projections, it’s time to reevaluate the business’ recurring expenses (rent and amenities) and variable expenses (supply and labor). Expertise Accelerated publication titled “Reduce Operating Costs With 10 Effective Tips” highlights some key areas to consider when cutting down on expenses. 

In particular, cutting down on large, corporate office buildings and going compact is a highly effective way to drastically reduce rent expenses and reinvest the saved money in the business itself, or save it for a rainy day. Downsizing the labor and outsourcing where possible is also a highly lucrative proposition, and businesses can achieve great savings by implementing as many such measures as necessary depending on the cash flow projections. 

Encourage Faster Payments

The sooner the invoice is generated, the sooner the business gets an influx of cash. Therefore, ensuring that invoices are issued promptly plays a huge part in managing cash flow. By observing the cash flow projections, entrepreneurs can gauge how often and how much cash flows into the business and put measures into place to optimize and speed up the cycle of money through the business for better financial health.

Implementing measures such as automatic invoicing via software, as well as developing incentives for customers to pay faster such as early payment discounts can prove to be formidable strategies in the long run. 

Implement Strict Payment Terms

Smaller businesses tend to take a more informal approach when it comes to enforcing payment terms. Typically, a small-town business operates on good faith and trust in the local customer base and, may make allowances in payment times to maintain goodwill. This approach unfortunately is incredibly debilitating for the business. The business needs money flowing through it and, making frequent allowances in payment collections and not enforcing a standard rule can make the whole business crash down eventually. 

The proper course of action is to draft the business’ payment terms and inform the customer base of the policy and enforce it as best as possible. There may be room for some exceptions but on the whole, keeping control of payment collections and discouraging tardiness is paramount for success.

Reevaluate Supplier Relations

In the same line of thought, after finishing the business’ payment terms, it’s time to look back on your cash flow projections and narrow down which suppliers are detrimental to the business’ cash flow. When we say detrimental suppliers, it refers to suppliers that simply charge too high a price for goods compared to competitors or have too rigid payment terms for your liking. By negotiating payment terms with these suppliers, or even switching to a better alternative supplier, the business can save a lot of money and improve the cash flow.

Leverage Lines of Credit

When it comes to short-term cash flow gaps, it may be a good idea to leverage lines of credit to assist in payments rather than spending more of the business’ available cash. For example, if a large payment is due, and the business would have to drain its cash reserves to fulfill the obligation, then leveraging a line of credit to make up the difference and not completely drain the business is a strategically sound choice to make. The cash flow projections drawn at the start of the optimizing process come in handy here as well, as entrepreneurs can identify such large expenses ahead of time and appropriately leverage lines of credit to support the business. 

Optimize Inventory Management 

Effective inventory management is a key factor when it comes to improving cash flow. By observing the business’ historic sales data and future cash flow projections, entrepreneurs can map out how much inventory on average will be needed by the business over the year. If the business is scaling up, then appropriate considerations can be made in the calculation. All that is then left is to appropriately manage the inventory i.e., stocking up only as much as will be needed, and reducing holding costs, among other strategies. Here is an effective step-by-step guide to inventory management for further reference.

Diversify the Revenue Stream

Diversifying the revenue stream basically means creating additional channels of income within the business via creating new products or services so that the business is not dependent on a single point of failure. If the primary product ceases to be in demand for whatever reason, the business must be prepared to have a fallback option to keep the cash flow going. For example, a perfume brand may launch its own line of make-up as an alternative revenue stream. That way, even if perfume sales drop, the make-up sales can pick up the slack. 

Get Professional Help

As lucrative as these strategies may sound, successful implementation is far from simple. To begin with, entrepreneurs need to have consistent financial professional help in keeping tabs on the business’ cash flow and regularly drawing cash flow projections to simulate the future and prepare accordingly. Such careful and strategic financial work is both time-consuming and difficult, so the best option is to simply hire a professional on the subject to keep the cash flow in check and provide experienced expert opinion. It is best to leverage outsourced cash flow projection services provided by specialized firms such as Expertise Accelerated in this case, as they come at a fraction of the in-house cost without sacrificing quality. 


Implementing these nine strategies to control and optimize cash flow can be the deciding factor in whether your business can withstand the coming recessionary spell. While this list of strategies is by no means exhaustive, it can provide a good foundational idea of what to work on and how to approach the subject, and entrepreneurs can mold these tips to fit their particular business model and achieve great cash flow optimization,