Did you know that cash flow is the reason for more than 80 percent of business failures? A lot is riding on your ability to keep the funds flowing in and out of your organization.
That’s why small business cash flow management is so important.
If you’re concerned about your cash flow management, then these six tips are for you. With them, you’ll be able to improve cash flow in your business.
1. Create a Long-Term Plan
Your first step should be to create a long-term financial plan to manage cash flow. Think about paying down debts, when you want to make investments in inventory, and more.
By mapping out these expenditures and estimating sales, you can see what your cash flow will look like.
Keep in mind that cash flow can vary. Someone pays an invoice late or a piece of equipment breaks. These unexpected disruptions will affect your cash flow.
A good plan should be flexible enough to accommodate these unexpected difficulties. Financial goals can also inform your day-to-day activities. The strategy may even be used as a basis for budgeting or setting sales goals.
2. Set Clear Payment Terms
Cash flow problems often arise due to when you’re getting paid. Your bills are all due on the 15th. None of your customers are paying until the 30th, even though the bill is due on the 10th.
Late payments are often avoided simply by setting out clear terms. If your customers know you’re going to charge them steep interest, they’re more likely to pay their bill as soon as possible.
People may also be confused about what the due date is. Always make sure your terms of payment are crystal-clear. It’s easier to impose penalties when customers were aware of them from the start.
3. Incentivize Early Invoice Payment
Another method you can use to manage cash flow in business is to incentivize early payments. Spelling out late fees and interest can make sure people pay their bills on time.
Giving them a reason to pay early can help keep your cash flowing more smoothly. Not every customer has the means to pay early, but those who do might take you up on it. Offer them a small discount or something similar, and you’ll likely see a few payments come rolling in sooner than expected.
4. Monitor Small Business Cash Flow Management
It’s hard to tell if you have a cash flow problem if you can’t see it. Unfortunately, many business owners don’t realize the dire straits they’re in until the cash crunch is already happening.
This can happen even if you have a great long-term financial strategy. What you need to do is monitor your small business cash flow.
Visuals like charts can make it easy to see where you’re flush with cash and when you need to tighten the purse strings. They can also show you how your cash flow and management compares to projections.
That can give you an idea of how well you’re doing when it comes to managing your cash flow. These visuals can also help you make more accurate predictions and better decisions.
Monitoring is key for adjusting your strategy and responding to problems. With this information in hand, you can prepare for cash crunches and play catch-up when you have more cash available.
5. Spread Out Your Expenses
Another tip for how to manage cash flow is to spread out your expenses as much as possible. Monitoring your cash flow can give insight into when is the optimal time to make certain purchases. You can also see when you need to pare back to “essentials only.”
Some cash flow problems are related to all your bills being due at once. If you can, try to spread out due dates as much as possible. It’s often easier to manage one or two small payments per week than several of them all at once.
You can also time purchases, such as equipment and inventory. If you know payroll is always done at the end of the month, then try to time inventory purchases two weeks before. This gives you some time to rebuild your accounts.
Some business owners will sit down and pay all their expenses on the same day, even if the bill isn’t due. Instead, take your time paying your bills. This will help you keep more even cash flow, even when there’s a dip in funds coming in.
6. Use the Right Software
Cash flow management services and software are also key to getting better small business management.
If you have accounting software already in use, then you may want to see what features it offers. The experts at Finvisor.com also recommend looking into services. Payroll, invoicing, and more can be simpler with the right team on your side, especially if that team is using the best software.
An example is invoicing software. This software can make generating invoices simpler. It may also be able to help you collect on those invoices. The system can be set up to send the invoices out on a schedule.
Making sure invoices go out on time is one way to help ensure they get paid on time. The system can also send out reminder notices on an automated schedule. Reminders may be exactly what your clients need to make sure they’re paying those bills on time.
Some platforms will help you with one or two tasks, while others are fully integrated. The best ones also give you access to teams of experts to help the funds keep flowing.
The Insight You Need to Keep Growing
Small business cash flow management is a key to business success. The reality is that most businesses still struggle with cash flow. These tips, the right technology, and the right services can help you nip problems in the bud and keep your business on course financially.
Looking for more great advice to help keep your business growing, even in an uncertain environment? We have a whole library of insightful articles waiting for you to discover. With the right advice, the sky’s the limit for your business.
