Ten tips to manage small business cash flow

Success for many small businesses lie in their ability to properly manage their cash flow. Most small businesses understand the need of staying on top of their cash game and how it’s vital in running a small business smoothly. Small businesses are always looking for ways in which they can make their business profitable and lean. While managing cash flow is important for all businesses, it is of utmost importance for small businesses and early start-ups.

What is cash flow?

In simple terms, cash flow is the movement of funds in and out of your business. And there are two scenarios within it. One is that of a positive cash flow, where the cash entering the business is far more than the amount leaving the business. Second, if money flowing out of your business is faster than it’s coming in then that puts you in a negative cash flow scenario, where your spend is more than your income.

We understand that with the myriad activities around your business, managing cash flow may be low on priority. Good news is that you don’t really need to be a finance expert to keep your cash flow in check. Having said that, you do need to have a strategy in place that fits into your overall scheme of things and business model.

With the ten tips listed here your business will be healthier, guaranteed. Read on to know what you can do to manage your cash scenarios and stay afloat.

1. Create a long-term financial plan

No plan, no gains. Having a long term financial plan helps you stay on track and gives you goals that you set out to achieve. Without a plan to fall back on, you would not be able to know when your business is going to become profitable or what is it that you really need to tweak to grow and prosper.

2. Focus on the cash flow, not just profits

Yes, your business is now profitable, but that doesn’t mean you don’t still continue to focus on the cash flow. Many small businesses go through early failure because they focus on forecasts and profit margins, start spending based on these forecasts and then are strapped for cash a few month down the line. Once you have the cash flow in order, the profits will be in order. Remember to always keep an eye on the spend versus the influx. It’s imperative for your business to survive.

Which brings us to our next tip…..

3. Be frugal and assess your spends

Once the profits start pouring in, many small businesses are unable to identify what expenses are really needed against the ones that aren’t. To manage cash flow efficiently, you must revisit your costs regularly. You can save a ton of money if you only looked at your spending carefully. Use business tools and accounting software to create profit and loss reports, payable and receivable, balance sheets and more. Let the tools help you with your decision making and help manage cash-flow better.

4. Always maintain some cash reserves

We do understand that at some point in your business cash shortfalls are bound to happen. But how you handle and manoeuvre yourself during that time will help your business survive. Always maintain some reserves in the bank no matter what situation your business is in. Having that back up will make it easier to focus on cash flow and you will stay stress-free about shortfalls.

5. Set clear payment terms and encourage faster payments

Setting clear payment terms early on is a crucial need to manage cash flow. If you don’t know it, you won’t know when you are to get paid, when payments become overdue and when you get cash strapped. Have a time frame set for getting payments from customers soon after delivery. Offer various payment options such as credit cards, debit cards and digital and mobile payment solutions as well. Encourage customers to pay up faster with early payment discounts and always keep the credit requirements strict.

6. Match receivables to payables

Have you matched the payment terms for your suppliers to that of your customers? If not, then this aspect can drastically improve your cash flow scenario. Avoid a gap in cash flow by matching your receivables to payables. Check out if penalties can be applied for late payment to your customers just the way suppliers charge your business late payment fees. Ensure the entire cycle runs smoothly at all times and you have a positive cash flow scenario going for your business.

7. Invoice on time…go ahead, automate invoicing

Some issues that influence cash flow are in your hands, for eg. invoicing. Why wait for two weeks after the work has been completed to invoice your customer? Set reminders to invoice as soon as delivery is done, go ahead and automate the whole process with tools such as Quiddity, and make sure that you get paid on time. Quiddity’s integration with Xero, makes it one hassle-free step and aids you with your cash flow management.

8. Appoint a team member to monitor your cash flow

A simple way to manage your cash flow is to assign the task of monitoring it to a trusty team member. Let him/her inform you when a certain cash limit is reached. Define this threshold e.g. when your cash flow hits $1,200. Having a trained member who will keep a close eye on the daily credits and debits of the organisation will ensure there is always sufficient money in the bank.

9. Make technology your partner

Knowing that tracking is key in managing your cash, let technology come to the rescue. Have a professional accounting software, preferably in the Cloud, which you can access from anywhere and at any time. Make use of online cash flow tools that will help you with the tracking and save time. You can also generate reports which will help you with the decision making and keep things in check.

10. Pick up the phone

And finally, don’t forget the human touch. An overlooked aspect on how to improve cash flow in small business is the human touch. All the reminders and automation, sometime, cannot get your payment in. So, to avoid the negative cash flow scenario, stay in the habit of picking up the phone and following up on unpaid invoices. There is no harm in reminding your customers from time to time that the services or products that you provided once, did come from a human and not a bot.

Now that we know that managing cash flow is crucial for small businesses, do make note that there is no overnight solution that can help you manage it. With these tips, you will have a better understanding of your financial situation, know how your business is running and stay financially strong.

Rely on your data, maintain positive cash flow and stay financially fit. Learn how Quiddity can help you with managing cash flow, with features such as automated invoicing and integration with Xero. To know more, give us a call today.