Often-Overlooked Ways Entrepreneurs Can Improve Cash Flow Early-stage companies may not realize they qualify for certain tax credits and incentives. Discover a few highly effective opportunities for small businesses to better manage cash flow.

In early stages of a business, cash management is often a big challenge. Aside from receiving payments from customers, new companies can leverage mechanisms like favorable contract terms, early payment discounts, and tax credits to help improve cash flow.

Businesses can stay prepared through unpredictable circumstances and create growth opportunities by addressing common cash-flow challenges and learning how to fix them.

How can small businesses get a better handle on cash flow management?

Forecast for the future: "One of the planning tools we recommend for businesses is to perform a cash-flow forecast for at least six months or ideally 18 months out," explains Jessa Huybrechts, CPA and BizOps CFO with CLA (CliftonLarsonAllen LLP), which offers wealth advisory, digital, audit, tax, outsourcing, and consulting services. Preparing a forecast enables small-business owners to understand where their cash is coming from and what obligations they have over that time period which, in turn, helps them to be prepared when the unexpected inevitably happens.

Business owners should not make decisions based on their bank balance. Referencing a detailed forecast that includes the timing of cash inflows and outflows can contribute to making more informed business decisions.

Establish and negotiate contract terms: Clear payment terms in customer contracts make forecasts more accurate by letting business owners know when to expect payment. Entrepreneurs naturally concentrate on customer satisfaction and selling products or services, but contract terms with vendors and customers provide plenty of cash-flow management opportunities.

It's common to want to sign a vendor contract as soon as it is received but reviewing and possibly negotiating payment terms offers valuable benefits. It can help align inflows and outflows and guard against considerable gaps in payments. For example, if a large customer tends to pay behind schedule, consider offering a discount for paying upfront. Entrepreneurs can also negotiate for the customer to make an upfront payment as part of their payment terms. Many organizations understand that small businesses have limited resources and would be open to adjusting payment terms to support the successful completion of the contract and fulfillment of the order.

Negotiating for favorable payment terms in contracts can be intimidating, especially if your business depends on a few big customers, but having upfront conversations with your business partners will enable both parties to grow together in the long term.

Businesses engaged in long-term or multi-year contracts should watch that they're not locking themselves into a rate with no consumer price index or inflation adjustment. Though some contracts may seem standard, a few adjustments to prepare against external factors could positively impact your business.

What are some overlooked tax credits that can improve cash flow?

Various tax incentives were created to encourage entrepreneurship, employment, and innovation; however, tax credits are frequently overlooked for new entrepreneurial organizations to manage cash flow. Either they don't think they qualify for certain tax advantages or don't even know they exist.

Outside of revenue from customers, new businesses can take advantage of different sources of cash-flow funding from federal, state, and local tax incentives and credits. These mechanisms aren't tied to customers paying on time and can assist against factors like economic volatility, leading to cash inflows or reduced cash outflow.

Fostering innovation: You may qualify for a research and development (R&D) tax credit if you are designing new processes or products or improving existing ones. Companies in the technology and SaaS, Software as a Service, fields are generally good candidates for R&D credits.

"There's such a strong focus on fostering and encouraging early-stage companies and innovation in the United States. There are various ways to achieve this, tax credits being one of them," says Michael DePrima, Tax Principal at CLA. "These can be huge for cash-strapped companies."

A break on employment taxes: The employee retention credit (ERC) is a federal credit against employment taxes. Created by the CARES Act and recently expanded by the American Rescue Plan, many businesses can use it to boost cash flow. "The great thing about the ERC is you can amend for it," DePrima says. "We deal with a lot of companies that didn't know it existed or know they qualified, and we can go back and amend quarterly payroll tax returns and get refunds for those that qualify."

Tax credits can be a powerful tool that new businesses can use to improve cash flow. Staying up to date on local, state, and federal eligibility requirements can help you take advantage of all the credits and deductions available to you, helping your early-stage company continue to grow for years to come.

Click here to learn more about CLA and how they can help your small business improve cash flow and prepare for success.