Small Business Cash Flow Management Top 10 Strategies


While cash flows are unique to each business, it is important to understand the basics and how to analyze your small business’s cash flow to improve your business’s cash flow management. In this technological era, there are plenty of tools you can use to stay on top of your small business cash flow. For example, you can use accounting software to better manage your budget, track your expenses, and prepare financial reports. These outcomes might be worrisome even in a stable economy, but that’s not exactly where we find ourselves right now. The impact of late customer payments compounds the issue of soaring interest rates, and thousands of companies are facing serious cash flow and liquidity struggles as a result. Many realize they need to do something about accounts receivable results, but they aren’t certain which strategies will yield the quickest results.

Discover how to go from having a cash flow challenge to smart money management. Credit risk is part of doing business, but you can mitigate this by asking customers to complete an application before giving them credit. Making the sale may not be worth the pain and hassle of late payment. Reassuring customers, handling suppliers, and managing staff working from home while keeping others safe is essential, but so is ensuring that your financial reporting is up to date. Otherwise, it won’t be a true reflection of your monetary situation. You might, for instance, have a regular customer who brings in a lot of business, but you’ll need to factor into your forecast that they usually take 60 days to pay.

  • You should set aside cash for slow periods or seasons where you will not be bringing in sufficient income to meet the demands of expenses.
  • Although it may seem intimidating to some small business owners to calculate cash flow using either method, cash flow statements can be easily created using a basic spreadsheet template.
  • Free Cash Flow enables you to understand what money you have available to spend.
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  • A statement of cash flows is one of the three core financial statements.
  • The business plan should demonstrate the need (and effect) of financing for the future of the business.

Not only will technology save you time, but it will also save you money by providing you with the tools to better understand and manage cash flow. As a rule of thumb, small businesses should create cash flow projections on a monthly rolling basis, forecasting 12 months out. To improve cash flow forecasting accuracy, projections should be updated weekly with actual sources and uses of funds.

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But these tips will help you get a better overview of the way finances are running in your small business. Have a clear understanding of what expenses are coming up and how you’ll cover them. It’s simple — the sooner you send an invoice, the sooner you’ll get paid. So if you want to get paid within a month, try making your payment terms 13 days or fewer.

Cash flow management is how a business manages the money entering and exiting the business. A well-crafted cash flow management strategy can help a small business understand operating expenses and plan for future investments. When a small business manages cash flow well, it’ll be able to identify trends that could negatively impact the business and counteract them before the company is at risk. These 10 cash flow management tips can help businesses more effectively meet operating expenses and invest in the future.

  • A study conducted by Fundera found that 37% of small businesses reported errors in their financial records, leading to inaccuracies in cash flow assessments.
  • Being able to secure investors will be critical to growing your business so you want to make sure your finances are in order.
  • Traditional methods like spreadsheets or manual data entry can be time-consuming, diverting valuable resources away from core business activities.
  • An excellent example of this is empowering salespeople with data and technology to close deals more quickly and easily.
  • Regardless of size, cash flow management is an essential part of running a business.

Look for ways to streamline operations and automate processes where possible. Eliminate unnecessary expenses and closely monitor variable expenses, especially during slow sales periods. Cash flow is the money coming into and going out of your business, tracked on a cash-flow statement. If you have positive cash flow, you have more money coming into your business – typically through sales or borrowed funds – than going out, to expenses such as payroll, inventory and rent.

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Understanding the break-even point can help managers figure out the critical level of business they should be targeting. This might inspire the need to create a more stringent budget to better costs and find ways to cut expenses or increase sales, for example. Software has now automated or streamlined collect homework what used to be manual processes. Small business owners will find software products for accounting, payroll, time tracking, expenses, etc., that can make complex and time-consuming processes easier. Managing cash flow properly is one of the most important skills that small-business owners can master.

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As a professional, it is essential to understand the gravity of the situation and take steps to prevent it from happening. Tom Kelly, Director of Analyst Relations for Oracle Netsuite, also sees the value in utilizing technology to streamline processes and recommends small business owners make a habit of using it daily. When you leave a comment on this article, please note that if approved, it will be publicly available and visible at the bottom of the article on this blog. For more information on how Sage uses and looks after your personal data and the data protection rights you have, please read our Privacy Policy. For example, you could increase your pricing if you believe customers will pay more.

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Without proper financial planning, these aspects of your business can get out of hand. With Finmark, you can easily monitor cash flow and forecast your future cash flow position. Our intuitive financial planning tool helps you see where you stand today and plan for what might happen tomorrow. Managing cash flow can be overwhelming, and it’s okay to ask for help. Consider working with an accountant or bookkeeper who can help you with budgeting, forecasting, and cash flow management. Start where you are and set a goal to have one month of expenses in your business savings account.

On any given day, a small business’s cash flow position determines whether it can pay its employees, pay its vendors, take on new orders, or offer its customers incentives and discounts. Cash flow ultimately affects a business owner’s ability to make key day-to-day decisions, plan for growth, and to react to market changes. Managing cash flow is one of the biggest challenges facing small business owners. Cash flow management refers to the process of tracking the inflows and outflows of cash to maintain positive cash balances.

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But outside of knowing the ebbs and flows of your business, there are a number of best practices around managing cash flow effectively. We asked our friends at Xero to give us their top tricks of the trade. To help you get a better grasp on things, you can also connect your Square account to Xero’s accounting software through Square App Marketplace. (Remember, this post is for educational purposes only. For tax advice related to your business, be sure to consult a reputable accountant).

Business owners often fall into the trap of believing that as long as they are showing a profit on their books, there will be enough cash to fund ongoing operations. Profit, like cash flow, is either negative (a net loss) or positive (a net profit), but that does not mean that cash flow and profit are the same. If a small business owner understands the relationship between cash and profit they can more easily make key decisions such as how to pursue new opportunities or how to adjust to changes in the market.

Small Business Cash Flow Statement Examples

Even if you are seeing profits month-over-month on your sales, you have to wait until you actually have that income in cash for it to reflect as actual cash flow. It is one of the factors they will consider when determining whether your company is a solid investment. Being able to secure investors will be critical to growing your business so you want to make sure your finances are in order.