Three ways businesses can improve cash flow

Cash flow is crucial to businesses. Self-funded firms need to generate cash flow in order to create a return that makes the enterprise worth running in the first place. Other companies seeking funding from either angel investors, venture capitalists or private investors will need to either show that they have generated returns or illustrate progress towards creating these returns.

Businesses must always keep an eye out for cost reduction, and this practice is even more crucial in our current business climate. Fortunately, there are many methods these firms can use to lower their costs and keep their cash flow at healthy levels.

Businesses involved in the distribution of goods should keep a close eye on their inventory, according to CNBC. For example, small jewelers or art studios can benefit from more closely aligning the goods they have available with customer demand. Inc. Magazine reports that businesses that pay fees for every credit card transaction made can cut their costs by encouraging their customers to use cash instead. These businesses can provide incentives similar to the credit card companies.

These same organizations can take additional steps to reduce their costs by engaging in 1031 exchanges to obtain tax benefits on the sale of assets like commercial property, equipment and bullion. These financial transactions can be set up with qualified intermediaries such as Strategic Property Exchanges, LLC.

The primary benefit from setting up one of these transactions in a way that qualifies as a like-kind exchange is deferral of taxation. Since the taxes that need to be paid on the item sold will be deferred, the owner can retain all equity held in the asset that is sold. Therefore, the owner will need less leverage to purchase the replacement item.

Lowering the outstanding debt of a business translates to smaller debt payments and interest costs. Since debt payments are made out of operating income, which can be taxed at rates up to 40 percent, having less debt means paying less in taxes. Minimizing debt is particularly important in our current economy since a lack of domestic demand threatens the revenue and cash flow of many businesses.