Effective cash-flow management strategies for small businesses

This is as opposed to them paying monthly or annually for your product. And even if you do have paying clients, getting them to pay your accounts receivable consistently and on time can be a bit of a headache. In this guide, we’re going to cover eight cash flow management strategies for your business, so you can avoid going to zero.

• Even if you take a minor hit in terms of profit, it can be better to get the cash in hand early.
• Rather than wonder, set a realistic goal for when you want to break even.
• If so, consider energy efficient fixtures to lower utility bills.
• Without a sufficient buffer of cash, any of these factors could result in a cash flow gap.
• Essentially, to have more cash flow in a business, you want to take every measure you can to help your accounts receivable bring in as much as possible as quickly as possible.
• If your current agreement is net 30, consider asking for net 60 or 90.

The cash flow statement includes the bottom line, recorded as the net increase/decrease in cash and cash equivalents (CCE). Companies with strong financial flexibility fare better, especially when the economy experiences a downturn, by avoiding the costs of financial distress. As a small business owner, cash flow management can be overwhelming, especially as you’re seeking to implement new best practices. Reach out to an accountant or bookkeeper for help or answers to questions about budgeting, forecasting, and cash flow management. Start by setting a goal to have one month of operating expenses in your business savings account and go from there.

Types of Cash Flow

By staying on top of your cash flow, you can make informed financial decisions and set your small business up for success. Review your expenses regularly and look for opportunities to reduce costs without sacrificing quality. Evaluate your vendor relationships and negotiate better deals or payment terms. Look for ways to streamline operations and automate processes where possible.

• Managing cash flow in a business requires some work, but it’s key to the company’s success.
• The best and easiest way to handle invoices and payments is by automating the process.
• Pay too soon and you may miss out on being able to use that cash flow in more lucrative ways, like taking advantage of a steep discount temporarily offered by a particular supplier.
• Follow the points we’ve suggested above, but don’t forget to access professional advice whenever and wherever you feel it’s necessary.
• Investing activities include purchases of speculative assets, investments in securities, or sales of securities or assets.

A healthy cash flow depends on the turnover of inventory for which the cash outlay has already been incurred. Identify industry norms for inventory turnover and discount any inventory that exceeds that average or bundle with other products and services to move them off your balance sheet. Another tool for small business cash flow management is a cash budget. One study of small business cash flow management found that 50% of small businesses had less than 15 days of cash buffer and only 40% had more than a three-week buffer. These statistics indicate that the majority of small businesses maintain a thin cash buffer. In this regard, small business cash flow projections are one of the most important business planning tools to ensure business viability.

Technology strategies to complement your business plan

For instance, if you run a dealership, probe another car dealer to see where they’re spending the most. This is a particularly feasible option if you have friends in the industry. If you don’t, you can connect with some on platforms like Meetup, which allows you to collaborate with others in your industry.

One poorly implemented cash practice can send a business spiralling, which is why it’s important to keep your cash flow steady and stable. Now that we have a firm grasp on how to handle cash conversations cash flow management for small business with tact to encourage positive cash flow (also known as “inflow”), let’s talk about best practices for cash outflow. The best and easiest way to handle invoices and payments is by automating the process.

Paying bills

As a business owner, you’ll be juggling multiple payments at once. Suppliers, your landlord, and credit card companies will account for a chunk of that cash flow. Although it might be tempting to pay everyone off as soon as you get a large payment in, cash position wise, that’s not the best idea.