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How to Effectively Manage Your Small Business Cash Flow

How to Effectively Manage Your Small Business Cash Flow

March 11, 2021

Your business cash flow is an incredibly useful indicator of your success. Believe it or not, cash flow problems are the number one reason why small businesses fail! Monitoring your cash flow and taking proactive measures to keep your bottom line out of the red will ensure you always have cash on hand to meet your financial obligations. It’s never too late to start paying attention to cash flow. Here are some tips from Strategic Wealth Inc. to help you get a better handle on your business financials and keep your cash flow healthy.

 What Does Healthy Cash Flow Look Like?

Cash flow — the amount of money flowing in and out of your business over a certain period — is the very lifeblood of your business. Maintaining a healthy cash flow will keep your business alive and provide a solid foundation for future growth. But what does this look like? To put it simply, the ideal situation is to have more money coming into your business than going out, leaving you with excess cash to pay bills, pay shareholders, settle debts, and re-invest in your business.

Negative cash flow, on the other hand, means you don’t have the working capital available to cover bills and other business expenses. This doesn’t necessarily mean you’re losing profit, though. A mismatch between your earning and spending over a specific period can cause negative cash flow, even if your profits are improving in the long run.

Maintain Organized Financial Records

How can you ensure that your business always generates positive cash flow? The key is good bookkeeping. Tracking your income and expenses — and reviewing your reports regularly — will enable you to make prompt adjustments and fix cash flow problems before they occur. The best way to do this is with robust accounting software. Using pen and paper to track your business finances just isn’t realistic anymore. Even electronic spreadsheets have become outdated.

If you haven’t already, open a business bank account online so you can manage your finances even more effectively. Look for a bank account that will integrate seamlessly with your invoicing system and payroll software for maximum efficiency. Features like free instant deposit and ACH transfers, high yield interest, automatic bookkeeping, and cash flow projections will make it much easier to keep tabs on your working capital.

Identify Ways to Earn Regular Income

If you’re just barely scraping by or relying on credit to keep your business going, you need to free up cash ASAP. Look for ways to generate cash quickly so you can stay on top of your business expenditures and put some excess cash away for emergencies. One way to do this is to encourage your clients to pay faster. Send invoices with your products or immediately after providing your service, offer early payment discounts or impose late fees, and make it a priority to pursue those overdue accounts.

Pay Your Bills Strategically

Another way to improve your cash flow is to make adjustments to your business expenses. Beyond reducing ongoing costs, look for strategic ways to pay your bills so you always have the cash you need before making payments.

While some of your bills likely follow a fixed payment schedule, others may be more flexible. For example, The Pitch Queen recommends negotiating with your suppliers for payment terms that better fit your needs. Try meeting with your suppliers and negotiating a later payment date so you have time to acquire cash before your invoice is due. Suppliers are often willing to negotiate mutually beneficial deals that solidify long-term relationships with their buyers, so don’t be afraid to ask for the payment terms you need.

It’s easy to overlook small business financial matters when things are going well. But by the time a cash emergency occurs, it’s already too late. Healthy cash flow management will ensure you always have cash on hand when you need it. And if you need help navigating the financial side of your business, Strategic Wealth Inc. can offer the professional financial assistance you need. Get for a free initial consultation with Shawn today. Call 573-693-9337.

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