Tips For Managing Small Business Cash Flow

When it comes to managing a successful small business, healthy finances are key. Otherwise, everything from product and service quality to employee professionalism can suffer the consequences.

In the modern business operating landscape, ensuring that finances are healthy can be easier said than done. Luckily, in order to lay the foundation that a business needs to be successful, there are tips and tricks that can be employed when it comes to managing cash flow. 

Whether applying for a business loan, setting up a company credit card or turning to crowdfunding, businesses can adopt many different tools and techniques in order to create a financially stable company. 

Defining cash flow 

Before detailing ways to manage cash flow, it’s important to define exactly what this term means. By having a full understanding of everything that encompasses cash flow, small business owners are better placed to effectively manage this key aspect of business.

With this in mind, the term cash flow in a business refers to the amount of cash moving in and out of the business at any point in time. The nature of cash flow means that it can be positive or negative. 

For example, positive cash flow will indicate that the business has more money coming into it  than what is moving out of it. Whereas negative cash flow means that a small business has more money moving out than what is coming in. 

5 ways to manage cash flow 

Managing the financial side of a small business is often a business owner’s worst nightmare. However, with the help of different techniques and tips, managing cash flow can in fact be simplified. 

1. Sign up for a credit card

When signing up for a credit card, a small business is essentially gaining access to a  revolving line of credit. This line of credit can be used to cover payroll or smaller purchases while the business is between payments. 

The great thing about a company credit card is the fact that a business owner can better track business spending. Thanks to a monthly itemised statement, spending is always monitored, which in turn helps to manage cash flow.  

2. Embrace loans

Approaching a financial institution for a business loan can offer a much needed injection of cash into a small business. In fact, applying for and obtaining a loan can provide a myriad of benefits to a small business owner.

In one instance, money from a small business loan can go towards improving the overall cash flow for the business. The loan may also help pay employees and suppliers. In another instance, loan money can be used to buy equipment without impacting current cash flow. 

3. Implement a billing strategy 

A key obstacle when it comes to cash flow is billing. There are always clients or suppliers who pay invoices late. While this may be par for the course for them, it can wreak havoc on the cash flow of a small business. 

To help manage cash flow, consider having a different billing strategy or schedule for tardy clients than you would for clients who pay on time. This way, there are still invoices being paid and therefore money coming in while you wait for their particular invoices to be paid. 

4. Pay employees and yourself 

To manage cash flow short term you may hold off paying people within the management team and also yourself. However, this can be harmful on multiple fronts. Firstly, there will be no true indication of cash flow. Secondly, employees will start to feel undervalued and unappreciated.

By routinely paying every employee within the business, as well as yourself, you can see the true extent of your finances. This kind of insight makes it exponentially easier to monitor and therefore manage cash flow. 

5. Start crowdfunding

For those wanting to effectively manage cash flow, looking into opportunities for crowdfunding can be beneficial. This is because through elements of crowdfunding, individuals can reach large numbers of prospective investors, each with various connections. 

Crowdfunding is increasingly growing in popularity as it is both beneficial to the business and individual investors. For the small business, crowdfunding provides the funds needed to manage cash flow and even achieve positive cash flow.

For the investor, crowdfunding presents an unique opportunity to access new and exciting opportunities. By investing in small businesses, investors have the potential to yield high returns. Additionally, crowdfunding provides a way for investors to diversify their portfolio. 

Managing cash flow in your business 

When starting a small business it’s all about filling a gap in the market. Luckily for some owners, filling gaps in the market usually means providing a product or service that they really love. However, for a small business to enjoy success, it needs a lot more than passion alone.

Namely, a successful business needs money, a commodity that many people are searching for. That’s why, if you’re lucky enough to start your own business, managing cash flow is paramount to the overall health of the business. 

While it can be easy to get caught up with managing clients, customers and employees, one eye needs to be firmly set on cash flow. This way, you can take advantage of an array of opportunities that will actively work to keep cash flow positive and your business running.