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8 Vital Cash Flow Management Tips for Small Business Owners

Discover effective cash flow management strategies and learn how to boost business financial stability.
8 Vital Cash Flow Management Strategies: Discover effective cash flow management strategies and learn how to boost business financial stability.

Small business owners need actionable strategies for cash flow management, especially during uncertain times (such as when a recession may be looming). More than 60 percent of small businesses experience cash flow challenges. Of that, roughly 30 percent of the challenges are serious enough to risk closure, such as difficulty paying off loans or struggling to pay suppliers, employees, or themselves.

What is cash flow in business? It’s the money that moves in and out of your business every day, week, and month. Business cash flow is the money you receive from customers and the money you use to purchase raw materials, office equipment, and more. It’s the money used to pay salaries and reinvest into the business.

What is the best cash flow management strategy? In what follows, we’ll outline some best practices in effective cash flow management. Then, we’ll take a look at the role of managing financing as part of your cash flow budget, since debt service can be one of the most significant drains on positive cash flow every month.

8 Cash Flow Management Tips

Hand pointing to "Cash Flow" graphics. (8 Vital Cash Flow Management Tips for Small Business Owners - Guidant Blog).

1. Monitor and Budget Cash Flow

You shouldn’t have to guess how much money comes in and out of your business. Set up accounting procedures to monitor what cash comes in from all sources and what your cash flow needs are in terms of operating cash flow. You should regularly produce cash flow statements.

You need to budget to ensure positive cash flow and sufficient funds when needed. Is what you’re receiving in cash flow enough to cover your expenditures? If not, you need to either raise your income or lower your expenditures.

Ideally, you should have cash flow left over once you’ve balanced the books between income and expenditures. The left-over cash flow can be your profits, or you can earmark some as a cash reserve for future business needs.

Don’t let bookkeeping overwhelm you — explore our Complete Guide to Bookkeeping for Small Businesses and gain the clarity your business needs.

2. Forecast Future Cash Flow

Hands using a mobile phone pointing at a graph on desk with financial paperwork. (8 Vital Cash Flow Management Tips for Small Business Owners - Guidant Blog).

You also need to set up a system in which you can forecast future cash flow. This can be based on estimates and actual figures representing your income and expenditures currently. However, all businesses need to monitor their forecasts to take account of ongoing changes and fine-tune them as needed. Also note any variation or seasonal fluctuation. There may be times that you need to spend more cash than usual (if you can get bulk raw materials at a discount, for example). Some businesses are seasonal, so have peak and/or trough periods of income or outflow.

3. Practice Timely Invoicing and Track Payments

Invoicing is key to your cash flow. Invoices are, at the most basic level, a request to be paid for services rendered. If you don’t invoice, you don’t get paid. Without getting paid, it’s not likely you’ll have a strong cash flow!

It’s also very important for small businesses to track the vendor payment of your invoices. If you aren’t being paid, or chronically receive late payments, it can weaken your cash flow — and ultimately your business. Follow up with vendors who don’t pay on time or who chronically delay payment. If the issue persists, consider switching to new vendors.

Ready to master payroll? Check out our Complete Guide to Payroll for Small Businesses and keep your payroll in perfect order.

4. Monitor Your Inventory

Woman business owner managing inventory, holding a box and writing in a log in an office space. (8 Vital Cash Flow Management Tips for Small Business Owners - Guidant Blog).

You also need to plan to get paid for everything your business produces. Do you have unsold inventory? Consider implementing strategies to clear it out and generate revenue, such as holding a special sale. Also, strategize why it didn’t sell. Is this a product you should discontinue or make less of in the future? (Conversely, if you have a rapidly selling and popular product, consider making more of it or expanding into new markets.)

If some of your inventory sells slowly, consider methods of maximizing the sale time or cutting down on any storage expenses. Could you expand into new markets to increase your turnover? Can you get a break on storage costs or go to a lower-cost storage supplier?

5. Optimize Customer Payment Methods

Along with ensuring that your business gets paid, optimizing your own customer payment methods is an important part of cash flow for any business that accepts other than point-of-sale payments. First, monitor your accounts. Are any customers not paying you? If so, take action to receive payment. Second, optimize your payment terms, such as instituting a 30-day payment period or offering multiple payment channels like online payments, mobile wallets, and credit cards. This can considerably streamline payment processes and accessibility for customers. Implementing electronic invoicing systems can also expedite the payment process, reducing the time between billing and receiving funds.

To encourage timely payments, consider offering incentives for early payment and setting up automatic payment reminders. Additionally, adopting contactless payment technologies can streamline transactions and improve customer satisfaction. It’s crucial to regularly review and update your payment systems to ensure they remain secure and efficient, thereby maintaining trust and a smooth payment experience for your customers.

6. Focus on Profitability

Hand pointing to chart graphic increasing next to a pile of coins. (8 Vital Cash Flow Management Tips for Small Business Owners - Guidant Blog).

Profitability is the linchpin of business. A business that’s not profitable won’t long stay in business. Pay attention to your pricing and profit margins. If one product is particularly popular, can you increase the price to grow your profits or make more of these products? Periodically review your business expenses. Can you reduce them to improve your margins?

7. Manage Risk

Managing risk is also key to managing cash flow. Risk to a small business can come from many quarters. Periodically look at the competitive landscape for your products or services. Do you have new competitors? How are they impacting you, and what strategy do you have for dealing with the impact? Look at the overall macroeconomic climate. Is the economy doing well? If so, how are your customers affected? If you’re in a sector where an economic downturn can cause your customers to tighten their belts, are you strategizing and forecasting appropriately? Is your supply secure and constant, or are there issues you need to be concerned about?

Don’t let inflation slow you down. Learn how successful US entrepreneurs are inflation-proofing their businesses in Inflation-Proofing Your Small Business: Insights and Tactics from Successful US Entrepreneurs.

8. Assess Your Financing Needs and Methods

Business owners looking at finances. (8 Vital Cash Flow Management Tips for Small Business Owners - Guidant Blog).

Needing funding is common for small businesses. You may want to expand into new markets or geographic locales, purchase equipment, or undertake many of the other reasons small businesses need financing. But your financing needs and methods can have a major effect on your cash flow.

First, if you anticipate needing funding from a lender (like a bank loan), plan to look for it during a period of healthy cash flow. Most lenders want to see a comfortable cushion between expenditures and profits so that you will have no difficulty repaying a loan. If you run into a cash flow crunch, you are unlikely to be approved for a loan.

Second, be aware of the multiple financing options available. While small business loans are a major source of funding for small businesses, loan payments are not optimal for your cash flow. Debt service can run in the thousands of dollars for a loan, and generally needs to be paid every month.

To align your financing with your cash outflow, it’s helpful to explore financing options beyond traditional business loans. Portfolio loans, for example, can allow you to borrow up to 80 percent of assets you have in stock, bond, and other portfolios. Payment on portfolio loans doesn’t begin until you actually use the money, so you can plan to utilize it at times of peak cash balances.

Small business owners should also be aware of Rollovers for Business Startups (ROBS), which lets you use your own retirement funds, such as 401(k) and Individual Retirement Accounts (IRAs), to fund your business. Because ROBS uses your own funds, you can use them to invest in your own business and remain entirely free of debt service — which can be a very smart way to ensure the strength of your cash flow.

ROBS is set up with a method in which a new corporation and retirement plan is created. The method leaves you free of the taxes and penalties that can occur if you simply withdraw retirement funds without using ROBS. ROBS can also be used in conjunction with other funding methods, such as a down payment for a loan.

Curious about using your retirement for business funding? Discover how in What is ROBS? How 401(k) Business Financing Works.

Looking for Financing That Optimizes Your Cash Flow?

Looking for funding that won’t strain your cash flow? Consider the Rollover for Business Startups (ROBS) plan — a powerful solution that keeps you debt-free. At Guidant Financial, our team specializes in ROBS, and we’re ready to show you how it can make a significant impact on your business. With ROBS, you can invest in your business without any debt obligations, allowing you to channel all your cash flow into growing your venture. Get in touch with us today to explore how this financing can work for you!

Call us today at 425-289-3200 for a free, no-pressure business consultation to get started — or pre-qualify in minutes for business financing now!

“When Falling Sky Brewing presented itself as a great opportunity for me, I needed the capital. Traditional lenders weren’t going to do it. I took a chance on myself that I could grow my business and my 401(k)… And I thought, ‘You know what? I could do this without overhanging debt.‘”

Stephen Such, Falling Sky Brewing

Read the stories of REAL small business owners who work with Guidant.

Want to Use ROBS to Start a Business?

Our step-by-step Guide to Rollovers for Business Startups is a complete handbook of everything you need to know about using ROBS to start or buy a small business or franchise.

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