How To Successfully Balance And Manage Your Small Business Cash Flow

Cash flow is everything for small businesses: According to studies, 82 percent of small businesses go under due to poor cash flow management. Meanwhile, 69 percent of small business owners report sleepless nights caused by cash-flow-related anxiety. It’s not enough to be turning a profit — you need working capital to keep your business going. If you’re struggling, BusinessBooky shares some advice on how to balance and tune up your cash flow:

Budget effectively

Budgeting is the foundation of managing and maintaining a healthy cash flow. And, surprisingly, only half of all small businesses had a documented budget as of 2020! Don’t underestimate the importance of a structured budget — it gives you the clarity, discipline, and direction you need to stay in control of your money. Below are some top budgeting basics to keep in mind.

  • Spending: Create spending goals — rent, utilities, salary payroll, services, vendor payments, inventory, and other overheads. Keep an eye on your spending patterns and trim where possible.
  • Unforeseen expenses: You will have to deal with unforeseen expenses and big purchases in the future. They can wipe out your coffers. As such, maintain a rainy day fund. When possible, anticipate and plan months ahead.
  • Backup credit: Your rainy day fund needs a rainy day fund — a line of credit if things get truly dire. While debts should be avoided — interest fees can mount up — sometimes, there’s no choice. Try to always have a line of credit arrangement in place.

Utilize technology

As Zenbusiness points out, cash flow is all about the number crunching. You need a bird’s eye view of all the money coming in and going out of your company. Some of the areas you should have oversight over include employee payroll, taxation, expenses, accounting, and invoices. It’s not a good idea to do all the numbers manually — it’s time-consuming and error-prone, and accounting departments are out of reach of most small businesses. That’s where software to streamline your financial reporting comes in.

You can use tools like QuickBooks Online Advanced to run calculations. You can get reports on your overall cash flow, with individual reports for sub-categories. Thanks to these reports, you’ll be able to spot imbalances across various time intervals and make corrections to your operations where necessary. It’s a great way to get accounting done and stay on top of your numbers economically.

Review your payment policies

Atradius says 39 percent of invoices are paid late in the U.S. It’s the norm for businesses to have their payments — or receivables — delayed, often by months. This is a major problem, as not all small businesses have deep coffers and can’t afford to wait around so long for payments. Further, they can’t push late-paying customers to collections either — that’s the fastest way to lose them permanently.

A strategic, proactive payment policy can solve this problem:

  • Ask for payments in advance.
  • Don’t offer credit to new customers.
  • Invoice promptly — and keep following up.
  • Set up compounding interest — if possible.

Don’t be afraid of turning over stubborn, non-paying clients to debt collection. Not all clients are worth it.

Profits never pay the bills — your cash inflow does. It’s possible to make a profit and still go under. That’s why accounting, budgeting, and creative ways of managing your money are indispensable skills for every small business owner to acquire. Focus on maintaining a healthy working capital at all times and you will be golden.

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