8 Cash Flow Management Tips for Your Business
Among small business owners in the United States, nearly a quarter say that poor cash flow is their biggest challenge in running their business. Because cash flow is how business owners pay their bills and earn money to grow their businesses, this is an area that entrepreneurs need to build skills in to maintain the health of their businesses.
If you’re struggling with cash flow management, you’re not alone. In business education programs and training, a lot of attention is paid to monitoring your profit, not your cash. You likely just need some pointers to help you get back on track with monitoring your money.
To help you do just that, we’ve collected eight tried-and-true tips for managing cash flow as a business owner.
1. Keep Track of Cash Flow
The first mistake a lot of new business owners make is tracking their profit but not their cash flow.
While it’s great to stay aware of your profit quarter over quarter, tracking your cash flow gives you a more in-the-moment view of the financial health of your business. It also gives you a more accurate sense of how much money you have available for immediate use.
To get a sense of the amount of liquid cash you have on hand, start tracking the cash flowing in and out of your business via accrual accounting or cash accounting.
2. Plan Ahead
Once you have a solid system for tracking your cash flow, use this information to predict your cash flow in the coming weeks and months. Track the timing of your anticipated incoming payments and outgoing expenses. Start to predict when you’ll have gaps to cover or extra cash to spend.
In months where you have increased cash flow, set some of the money aside for a rainy day. Try to have 3 months’ worth of expenses on hand. Use this emergency fund to cover expenses in months when you have less income than you predicted.
Once you have savings in place, you can also use extra funds to invest in your business, helping your cash to accrue interest and build value for your company. In general, it’s wise to save just enough money for emergencies and then put the rest of your reserves to work for your business. Talk with your financial team about the exact right plan for you.
Finally, set up a line of credit as soon as you can. Doing this early means that the credit will be available for you to use when and if you need it. If you wait to do this until you already have a cash emergency, you might not be able to get it approved in time to save yourself from financial trouble.
3. Send Out Timely Invoices
You can’t get paid until you send out your invoices to your clients. Make a habit of sending your customer invoices regularly and in a timely fashion. If you can, send invoices electronically rather than by mail.
Set a specific payment timeline for your clients, usually 1-2 weeks after receipt of the invoice. Send out reminders if you need to in order to receive the payment you’re due. It may also be worth considering adding a late fee for payments received after the payment window to further incentivize your clients to pay you on time.
If you can, accept multiple methods of payment. Make it as easy as possible for your clients to give you the money they owe you.
4. Don’t Make Payments Before You Need To
In case this doesn’t go without saying, make payments to your vendors, landlord, and insurance companies on time. However, there’s no need to make payments early if you don’t have to.
Keep track of the due dates of all your expenses, and pay as close to the deadline as possible. If you’re strapped for cash in a specific month, see if you can delay payment on any of those expenses without incurring a fine. Work with your vendors to create a payment plan that works for your business’s cash flow.
If you have credit card debt, avoid accruing interest on the principal if you can. When paying off credit card debt and loans, pay the debts with the highest interest rates first.
5. Manage Your Inventory
If your business sells physical products, don’t hold too much inventory in storage at once. Think of these products in terms of their dollar value: surplus inventory equals cash just sitting in your storerooms!
Keep inventory moving by strategically discounting prices and offering other special rates. Make wise purchasing decisions when you restock; while you might get a better per-unit price when ordering in bulk, it’s only a deal if you can sell that inventory at a reasonable pace.
6. Audit Your Operations
Set aside time in your yearly calendar to conduct a company-wide audit of your operations and procedures.
Identify and eliminate redundancies in your practices. See if there are ways you can streamline and speed up any of your vital business operations. Make sure you have enough staff to cover your needs but don’t retain more staff than is necessary.
7. Update Your Product Pricing
Invest time in market research to ensure that your pricing remains competitive. Test out different pricing levels to see what brings in the most revenue from your customers.
While it might be tempting to simply undercut the pricing of your competition, you might make more money overall by selling fewer units at a higher price. Don’t be afraid to experiment to figure out what works best in your market!
8. Use Software to Your Advantage
Keeping track of all these pieces can be time-consuming and confusing. Consider automating as many of these processes as you can through ERP software.
An all-in-one solution can help you with sending invoices, making automatic payments, and much more.
Cash Flow Management Made Easy
While it can seem intimidating at first, successfully managing cash flow is simply a matter of setting up effective systems and sticking to them. However, doing this all manually takes valuable time and energy that would be better spent on growing your business.
This is where My Office Apps’ Inventory Management software can help your business. With our Financial Management module, you have access to a comprehensive set of accounting features that enable complete financial tracking with enough flexibility for you to customize it according to your specific requirements.
Curious to learn how we can support your business? Schedule a free demo of Kechie ERP today!