Boost Cash Flow During Growth Periods with Business Lending

With a thorough cash flow analysis and strategic business lending, businesses may be able to smooth out gaps in revenue for fewer ups and downs.

A clear understanding of cash flow helps businesses understand where money is going and the root causes of cash flow gaps.
Revisiting invoicing, payment schedules, and operating expenses may contribute to steadier inflows and stronger overall liquidity.
Thoughtful forecasting and well-planned financing decisions enable businesses to manage short-term gaps while positioning for sustainable growth.

Business money isn’t always straightforward. Sometimes assets are tied up in other things, like real estate or inventory, or they’re made up of potential value like invoices in an extended payment cycle. These things count towards the business's value, but companies might struggle if there isn’t enough liquid revenue to cover expenses.

Learning how to improve business cash flow, including strategic business lending, may help companies pay bills, maintain stability, and facilitate expansion at the right time.

Identify Cash Flow Problems and Their Causes

In many scenarios, you’ll make a sale of your product or service, and money will come in from that transaction. But the day-to-day logistics of how business happens may cause some unevenness in the flow of cash. When expenses outpace the flow of revenue, this can cause hills and valleys where your business is flush one day and frantic the next. The five rules of cash flow management are:

Keeping accurate and up-to-date books gives you the chance to view your current financial plan and make more informed decisions.
Maintaining a cash reserve establishes a buffer for the unexpected. The amount a business keeps in cash reserves usually depends on its risk tolerance and financial picture.
Invoicing and collecting proactively may help reduce one of the most common causes of revenue gaps.
Separating business and personal finances provides a clearer picture of where the business stands in terms of cash flow.
Simplifying accounting helps keep finances on track and uncover both opportunities and potential obstacles.

From there, a cash flow plan with strategic use of business lending can help smooth out or even prevent uncertainty.

Recognize Common Causes of Negative Cash Flow

The first step is to understand what causes negative cash flow. These are some common scenarios:

Slow customer payments: If you don’t provide traditional retail services, you may have much longer payment terms. Imagine you’ve sold $50,000 worth of materials, but your customers are on 30-, 60-, or even 90-day payment terms. You may not see that money for another quarter.
Overstocked inventory: While software for inventory management has gotten better over the years, there may still be times when you’ve invested in inventory and it hasn’t sold yet. Until you move the products, your value is tied up.
High fixed expenses: Long-term obligations, such as moving to a better location or expanding staff, can expand the success of a business but also create expenditures that outpace current revenue.
Seasonal demand: If your business relies heavily on seasonal upticks, it may cause cash flow dips between peak periods, especially if you experienced lower-than-usual performance during one of those periods.

These aren't the only reasons for cash flow obstacles. Understanding what causes these issues may help identify which kinds of business lending could help smooth them out.

Analyze Business Transactions for Cash Movement

Cash flow problems may ease up if the business’s profit increases. This might happen in several ways. The company could raise prices, for example, allowing for wider margins for goods and services. A business might also reduce operating costs so that less money flows towards expenses. Focusing on customer retention may strengthen profit numbers by increasing customer lifetime value, while finding new markets or better outreach for new customers might also lead to bigger profits.

But this is only part of the picture. Cash flow problems might be a symptom of something deeper rather than the cause of the issue itself. Analyzing for cash flow, rather than focusing only on profit, may go a long way toward fixing the underlying inefficiency. Borrowing without this basic understanding may smooth the problem out temporarily yet lead to further debt burdens on the business.

For example, a company may believe that problems with cash flow are due to fewer sales. However, analyzing transaction-level data like receivables turnover, supplier payments, and expense timing shows that cash is getting stuck by over-purchasing inventory.

Other reasons to conduct a thorough analysis of cash movement are:

It helps prevent misallocated debt or over-borrowing: Without clarity on how cash moves through a business, you might take out more debt than necessary or the wrong kind of debt. That mismatch may strain cash flow in the future.
It supports accurate forecasting: Related to the above, a better understanding of your cash flow cycles may help you better predict likely gaps and help direct borrowing strategically, rather than making purely reactive decisions.
It may strengthen the case for loan approval: Lenders typically evaluate how well a business manages its cash. Detailed awareness of your cash flow may strengthen loan applications by demonstrating trustworthiness with money.

Debt may lead to growth when it’s based on a clear understanding of cash flow dynamics. Scrutinizing statements may reveal a lot about where money is actually going. Look for:

A mismatch between revenue growth and operating cash inflow.
Rising accounts receivable or inventory balances without a corresponding sales increase.
Frequent short-term borrowing to cover expenses.

These may indicate that liquidity is tightening. What can you do if your analysis finds one or more of these symptoms? You may want to take a few steps to learn how to improve business cash flow and help bring things back on track.

Adjust Receivables and Payment Terms

Receivables and payment terms need to balance your cash flow needs with your client’s.

Shorten Receivable Cycles

Small adjustments to receivable policies might have positive effects on the overall state of a business’s cash flow. How can you encourage clients to pay sooner while maintaining a good relationship? Here are a few possibilities:

Offer early payment incentives: Giving clients the option to pay early, and more importantly, rewarding them, may encourage them to take advantage of earlier payments when they’re able. A cash flow analysis offers clues for how to do this realistically. For example, you might offer a 2% discount for invoices paid within 10 days of issue.
Adopt digital and automated systems where possible: In the days of paper, maintaining invoices and checks required a significant human investment to stay on top of them, avoid administrative delays, and resolve accounts. The same was true on the client side. An automated system may mean fewer things falling through the cracks and offer clients an easier way to handle payments.
Review customer credit terms: A strategic revamp may free up cash while maintaining the customer relationship. This might include changing terms in response to business growth, peak periods, or market disruptions.

Updating how and when money comes into the business may improve your cash flow so you don’t have to rely on external financing for short-term dips.

Streamline Expenses and Optimize Outflows

Another way to approach cash flow challenges is to look at what expenses are necessary for the stability and future growth of the business. This is a strategic look at how your expenditures are moving your business towards your goals.

Control and Monitor Expenses

Now that you’ve improved how you collect money, it’s time to examine how you’re spending it.

While businesses can’t avoid all expenditures, an expenses audit might help uncover where money leaks are happening.

Categorize costs into essential and discretionary: This highlights which expenditures might be supporting operations and revenue, and which ones aren’t as impactful.
Create a system of automation: Similar to the previous section, automation may reduce blind spots in spending by providing automated tracking and flagging for expenses that go over cost projections. Data like this can inform decisions about what expenses are necessary.
Reassess and negotiate contracts, business relationships, subscriptions, and other recurring expenses: You might be able to get a volume discount for peak periods from your current supplier, for example, or discover a subscription cost that doesn’t make much of a difference in overall company goals.
Set financial key performance indicators (KPIs) to help monitor progress: Just like KPIs for business functions like marketing or sales make it possible to measure what’s working, financial KPIs allow you to view your expenses as a dynamic part of the whole business strategy.

Implement Cash Flow Forecasting and Planning

Understanding how cash comes in and goes out helps to simplify forecasting. Cash flow forecasting and planning might bridge the gap between planning for the business and making decisions in real time. Ideally, a company will be able to plan ahead more easily and weather any unexpected issues because not everything will be an emergency.

Prepare for Short- and Long-Term Cash Needs

Cash flow needs have two parts. What a business needs right now may not look like what it needs in five years. Both components need to have separate categories to smooth potential problems.

Short-term Cash Needs

Short-term cash allows businesses to fund day-to-day expenses, those recurring or immediate expenses that keep the lights on. These include things like rent or mortgage payments, payroll, and inventory purchases. They may fluctuate with day-to-day operations or in seasonal shifts, depending on the type of business.

Operational cash flow typically covers these types of expenses, but businesses might also leverage lending tools like a business line of credit.

Long-term Cash Needs

Long-term cash flow typically directs towards strategic growth and investment, specifically initiatives that allow the business to grow and expand. These initiatives take time and develop over the course of years, so planning looks a little different here. These moves are strategic, not impulsive, and while it may take a few years to see the pay-off, forecasting might help determine when ROI might appear.

Long-term financing may help make these types of projects a reality. Structured repayment schedules and fixed interest terms may provide the stability for ensuring that paying back these types of loans is sustainable.

Why Preparing Differently for Long and Short-Term Needs Matters

The reason a business might need to plan separately for long-term and short-term expenses is that each type affects the liquidity and financial stability of the business differently. Then you can bring the plans together to view the complete snapshot.

Timing and predictability: Short-term expenses can often be managed with rolling cash flow forecasts. However, short-term forecasts may never provide the necessary preparation for a business to undertake a larger investment without some sort of unexpected windfall.
Funding sources: Short-term cash is typically managed through internal reserves or flexible credit facilities. Long-term projects rely on more formal financing arrangements that involve larger sums, longer repayment periods, and sometimes collateral or equity investment.
Risk management: Planning for the short term without considering the long term may result in payments and expenditures outpacing revenue. Conversely, planning for only the long term might cause over-leveraging. Planning for both helps ensure funding happens strategically.
Cash flow balance: Short-term forecasting helps maintain operational stability, but long-term forecasting helps ensure growth plans are sustainable. Both perspectives give businesses the chance to balance liquidity today with profitability tomorrow.

Leverage Financing and Other Cash Flow Tools

In times when revenues don’t cover expected expenses or long-term business goals, business lending can help bridge those gaps. Some options include:

A business line of credit offers flexible access to funds for short-term needs like payroll or inventory. You pay interest only on what you use.
Term loans provide lump-sum financing for long-term investments such as equipment purchases or facility expansion.
Commercial credit cards simplify expense management while improving cash cycle timing.
Invoice financing or factoring converts unpaid invoices into immediate working capital.
SBA-backed loans may offer favorable terms and lower down payments for eligible businesses.

Manage Cash Flow Gaps Responsibly

Cash flow gaps happen because business is rarely a straight line. Managing them responsibly means addressing the mismatch without jeopardizing long-term financial stability.

Using financing strategically rather than reactively involves a combination of deep understanding of your business’s ebbs and flows alongside financing options for different types of needs. This gives you a clearer picture of what your options are and how to approach each financial situation strategically. Debt is neutral. It might be a hindrance or a boon for business, depending on the context.

It might help to ask a few questions to determine the difference:

Am I relying on business lending to cover operational costs? This question may help determine whether gaps in cash flow are logistical in nature or a genuine need.
Do I know when my next cash flow gap is likely to occur? Some gaps might be truly unforeseen, but regular forecasting may take some of the mystery out of when cash appears and when it stops.
Do I have enough reserves to weather disruptions without keeping too much cash tied up? A cushion for uncertainty depends on your risk tolerance, type of business, and other contributing factors. Make sure you’re balancing stability with taking strategic risks for the growth of the business.
How and how soon do my clients pay? A common type of cash flow gap is the difference between when expenses become due and when payments are received from customers. Even small tweaks to that process might smooth out those gaps and make a difference in cash flow.
Am I matching the correct type of financing to the right purpose? We’ve talked several times about using the right type of financing for the context, but it bears repeating. Different business lending may help reduce the strain of financing certain operations or goals.
Do I have a trusted expert I can consult? Developing a relationship with a financial partner may help with dicier questions and long-term planning.

Keep Growth Sustainable with a Comprehensive Cash Flow Plan

Cash flow improvement isn’t just a one-time fix or a set-it-and-forget-it system. Learning how to improve business cash flow requires a profound understanding of the inner workings of the business and the context in which the company operates. Combining operational strategy with discipline and good financial tools may establish a foundation where cash feels stable and financing boosts success.