Top 6 Ways for Small Business Owners to Manage Cash Flow

As a small business owner, you know that managing cash flow is vital. The more you know about how money moves into and out of your business, the better you can make business payments on time and the less money you need to borrow. It isn’t enough to simply observe cash flow; in order for your small business to be successful, you need to control it. Here are six techniques to manage cash flow in your small business.

Look to the Future

No one can predict everything about the future, but by anticipating payments and expenses, you can take steps to minimize damage to your company’s bottom line.

Use past cash flow statements and future estimates to prepare quarterly, monthly, or even weekly cash flow reports. Take note of when you expect to be paid and when your expenses are due — if you won’t have enough to cover your expenses, you need to take action sooner rather than later. Late payments will hurt your business and your relationship with your vendors.

Use Technology to Your Advantage

Today’s accounting has come a long way from using an abacus or a handwritten ledger. Thanks to technology, you don’t have to be a technical genius to keep track of your cash flow quickly and easily. There are several software products aimed at solving problems specifically for small business owners. Accounting software makes it easy to record your cash flow, manage invoicing, and run reports.

A cloud-based or online accounting program such as Sage One can be accessed from anywhere by multiple users. These online accounting software programs securely store your cash flow information and protect it against crashes so you won’t lose valuable financial information.

Don’t Delay Invoicing

You won’t get paid if you don’t invoice, which is why prompt invoicing is directly tied to healthy small business cash flow. Send your invoice as soon as you complete your work.

If you’re not already sending invoices by email, you should start; your clients will receive invoices immediately, and you’ll have an electronic paper trail for tracking your payments.

Ensure Customers Understand Payment Terms

When a customer receives your invoice, it should have clear payment terms, allowing you to enter an accurate estimate for when you’ll be paid into your cash flow. By tracking your invoices according to their due date, you’ll know immediately which ones are overdue.

If you have a penalty for late payment, make sure your customers understand the penalty. Conversely, consider benefits for customers who pay early. Offering a discount for early payment can increase your cash flow even if it doesn’t increase your profit.

Focus Less on Profit and More on Cash Flow

Profit is important for your small business, but it is just one part of the cash flow puzzle. Soaring profits can hide big expenses.

Growing profits are encouraging, but according to Agnes Cserhati of AC Powercoaching, many profitable businesses don’t succeed because of poor cash flow management.

If you’re focusing only on profit and not managing your cash flow, you might have to visit creditors to keep your business going despite impressive sales figures.

Make Payments When They Are Due (Not Before)

You should encourage your customers to pay early, but when paying your own vendors, it’s beneficial to hold out until bills are due. The longer you wait, the longer you’ll have to collect money to make your payments. Using electronic payments, you can pay on the day your debts are due.

If your vendors offer benefits for early payment, consider carefully before committing. Depending on the benefit or discount, it could be better for your cash flow to hold off until payment is due. If you’re presented with a benefit for early payment, crunch the numbers to find out if it works with your cash flow.

Managing cash flow is vital to the survival of your small business. Use the above tips to help your business thrive.