Businesses need cash on hand to operate. From paying bills and purchasing raw materials, to launching a marketing campaign and covering expenses. Unfortunately, even if your business is generating enough revenue to thrive, having your cash tied up in assets makes it difficult to sustain your operations. That’s why maintaining a positive cash flow is vital to the short and long-term success of your business.
As a business owner, you must ensure your business has the cash required not only to meet your financial obligations, but also to have the flexibility to grow when the opportunity arises
What Is Cash Flow Management?
Cash flow is the money moving into and out of your business every month, specifically the net amount of cash coming in minus cash going out. If you have a positive cash flow balance, you have more money coming in than going out, and a negative cash flow balance is when you have more money going out than coming into the business.
Managing cash flow is the process of tracking your cash flow on a cash flow statement, examining the money moving into and out of your small business, and optimizing how money is moving so you can achieve a positive cash flow.
Why Is Cash Flow Management Important for Businesses?
For businesses, paying attention to cash flow and following good cash flow management strategies can be the difference between success and failure.
Cash flow management makes it easy for you to be prepared if financial problems arise and ensure you have enough liquid assets to cover expenses. By monitoring and managing cash flow, you will be able to make more accurate projections and budget for future growth more easily.
10 Business Cash Flow Management Strategies
Managing cash flow isn’t an easy task. We’ve outlined a few cash flow management strategies you can follow to help budget for the future, make well-informed financial decisions, and have the positive cash flow your business needs to grow.
1. Understand & Monitor Your Cash Flow
Once you understand your business’s monthly cash flow, you can identify issues, correct inconsistencies, and stay on top of payments.
Closely monitor and document your cash flow, profit and loss (P&L) statement, and budget. Regularly review these documents, keep track of important metrics, and investigate any concerns to stay on top of your cash flow.
2. Make Frequent Cash Flow Forecasts & Projections
With accurate cash flow data on hand, you can make more accurate and up-to-date forecasts and projections of future cash flow. As you prepare financial projections, forecast your cash flow as far into the future as possible, at least six months, so you can see whether you will have enough money to cover expenses and make long-term investments over time.
Forecasting your revenue and expenses using past cash flow statements can help predict when you are more likely to have cash shortfalls and when you can expect to have a positive amount of cash on hand. Consider not only historical figures and industry trends, but also the status of the current economy as you make cash flow projections.
3. Get Familiar with Basic Business Accounting Concepts
Understanding accounting concepts is important for business owners. By learning key accounting concepts, you will be better prepared to optimize cash flow, understand financial data, and maintain the fiscal health of your small business. Consider taking an accounting class or workshop tailored to business owners.
4. Create a Plan for Emergencies
No matter how carefully you forecast your business finances and project cash flow, you can’t predict the future. An emergency or worst-case scenario could lead to cash flow problems and severe consequences for your business.
A clear, strategic emergency plan is essential to surviving the unexpected. Make sure you maintain a contingency fund in case you need cash to keep the lights on one day.
5. Develop a Realistic Business Growth Plan
Growth is good, right?
Yes, but at the same time, growing your business too quickly without a plan in place can be risky. If more resources are allocated to hiring more staff, increasing inventory, and reaching a new market, you may run out of cash while waiting for sales to increase at the same rate.
When you want to grow your business, identify financial risks, make sure your contingency fund is up to date, and develop a realistic growth plan that avoids long delays between extra spending and extra revenue.
6. Streamline the Customer Payment Process
Do you want your customers to pay you for your products or services? Then make it as easy as possible for them to do so.
Inconvenient or confusing payment systems will make it more challenging for your clients to pay you. Find out what payment methods your customers are using and set up streamlined processes to accept those options. Make sure the user interface of your preferred payment system is easy to navigate and understand for customers.
7. Invoice Clients Early (& Send Payment Reminders)
Prompt invoicing is a key part of achieving positive cash flow. Waiting until the end of the month to send invoices to clients extends the time it will take for you to get paid—and for smaller businesses, these delays can significantly impact your monthly finances.
Invoice clients early, so you can shorten the time it takes to collect their payment. Don’t hesitate to develop a payment reminder system that automatically sends email notifications to let customers know when their invoices are due.
8. Pay Bills Strategically
If you pay all your bills at the same time every month, you can quickly drain your cash.
Instead, see how you can pay bills strategically. Sort them by level of importance, start by paying the most important bills first, and then see if you can stagger payments for less important bills throughout the month. Some vendors will let you be more flexible with the payment schedule depending upon your payment history.
9. Embrace the Benefits of Business Accounting Technology
Many business accounting tools on the market today have features that make it easier than ever for you to manage cash flow. Accounting technology will can help make accurate financial projections, generate invoices quicker, create regular reports, and improve the efficiency of your everyday operations. Consider incorporating business accounting technology to get these benefits and more.
10. Hire an Experienced Small Business Accountant
Professional accountants can manage and optimize your cash flow as well as create custom solutions to help you achieve a positive cash flow. If your small business could benefit from expert financial advice, or if you have questions about how to best manage cash flow, schedule a consultation with an experienced, local business accountant.
Contact Fisher, P.A. to Get Help Managing Cash Flow for Your Business
Our skilled team is ready to get to work so you can get back to doing what you do best: running your business. Call us at 704.332.7800 or fill out our contact form today to schedule a consultation.