7 Cash Flow Management Tips for Small Businesses
October 18, 2021
What are some cash flow management tips small businesses can use?
- Know your break-even point
- Ensure your books are financially updated and accurate
- Train your customers
- Be reasonable about your expenditures
- Liquidate cash that’s tied up in assets
- Schedule your payments effectively
- Put cashflow over profit
Anyone who’s ever started a business knows cash is king. Not having a consistent stream of money into your business means you might have difficulty staying afloat. This is why we strongly advise anyone starting a business, to use our cash flow management tips. For small enterprises, these tips will help bolster your management and forecasting skills, which play a vital role in maintaining your financial health.
Know Your Break-Even Point
Before you can even achieve a positive cash flow, you need to have a clear understanding of how much your business needs to break even. This means tallying all of your fixed monthly expenses and comparing them to your current cash flows. If you find that you go over your break-even point, then you must be doing something right. However, if you consistently fall short, then that is a sure sign that you have to rethink some financial decisions.
Ensure Your Books are Financially Updated and Accurate
You can also improve cash flows by looking at your business’ habits. These can be found in the accounting information in your books, so make sure this information is accurate and updated regularly. This way, you can gain insight into your company’s financial status at just a glance. This will also give you a way to forecast your future expenditures and earnings. Without your books, you may end up thinking you have more or less money than you have.
Train Your Customers
As a small business owner, your customers are your lifeblood. Without timely and correct payments from them, you will fall short of your breakeven point, and your business may suffer. So, your main goal is to collect payment for your products or services as early as possible. Ideally, this should happen before or upon delivery, but this is not always possible.
The key here is to be strict about your payment policies and enforce any penalties that you choose. If you’re able to accept payments after deliveries, then make sure your invoices are clear on your payment policies. Don’t bend the rules around customers who say they can’t pay. List out positive (and negative) incentives to payers and make sure your policies are clear and concise. This is an excellent way to ensure cash flow is managed correctly.
Be Reasonable About Your Expenditures
It can be tempting to buy many things for your business — a spacious office, shiny equipment, and new tech — but your business won’t thrive with these things alone. It’s best to spend your money on necessities only and make do with the rest.
If you have to borrow money for whatever reason, then try to aim for as small a loan as possible. Make sure that the payments and interest are something you can handle. Otherwise, you’ll find yourself in a vicious cycle of debt, which can result in the worst-case scenario — going out of business. Borrowing small and paying back on time will also help your credit rating, which will be advantageous for your business in the future.
Liquidate Cash Tied Up In Assets
You may be surprised at how much you’ve already spent on your assets. From leftover inventory to unused equipment, you may have a significant amount of money tied up in things that you don’t need.
If that’s the case, then try your best to get back that money. Even if you have to sell below book value, liquidating cash can help contribute to a healthier cash flow.
Schedule Your Payments Effectively
If there’s no incentive or reason for you to pay early, then you should consider delaying your payment. Take a look at all of your bills, and work out just how late you can pay without incurring penalties or late fees. Then, create a payment schedule around that, so that you can keep some of your cash on hand.
However, always consider how your suppliers and partners will react to your new payment scheme. If delaying your payments can potentially harm your relationship with them, then revisit your schedule and prioritize them first. The rule here is to delay at a reasonable pace.
Put Cashflow Over Profit
Most people think that the secret to making their small businesses survive is to focus on their profits. However, the success lies within how you manage your cash flow.
Always put your cash flow health before your profits. Check how much you’re earning every month, and put it against your break-even point. If you start seeing an upward trend in your earnings, and yet money always feels tight, then it’s a good sign that one of your financial practices needs adjusting.
These cash flow management tips for small businesses are by no means an exhaustive list, but they are a good way to start improving your financial management skills. Not all of these strategies will work for every small business, so try choosing one or even a combination of these, and find out which works best for your business.
If you find that your business requires expert advice and assistance, don’t be afraid to reach out and message Benito Keh today. With his years of experience in the entrepreneurial and financial fields, he knows what it takes to make a company survive — and even thrive — in times of financial instability.