6 Tips For Managing Your Small Business Cash Flow

Cash flow is critical for every business, especially if you run a small to mid-sized one. That’s why it is important to understand how to manage your small business’s cash flow. You have to keep a close eye on what others owe you (accounts receivables) and what you owe your suppliers or vendors (accounts payable).

Below are six tips you can use to take control of your small business cash flow in the coming year.

1. Always Have Backup Funds

Imagine you have one large client on whom the majority of your profits rely. What would you do if they went bankrupt or couldn’t pay their bills? Are you counting on a business deal to go through to float the business?

Regardless of how profitable your company is, cash reserves can act as a buffer against potential shortfalls. Place your money in an interest-bearing account so you can reap the benefits of your savings in the future.

2. Make a Budget and Stick With It

It takes financial discipline to manage cash flow. As a business owner, it is your job to know how much the company is earning and spending. Create a monthly budget with a detailed list of estimated expenses and try to follow it.

Keep a close eye on how much the company spends on salaries, utilities, equipment, and other materials. Look for ways to cut back on expenses whenever possible.

If you haven’t opened your business yet, sit down and calculate what your break-even point would be. This will help you understand how many products or services you will have to sell to make the business profitable. It can also act as a model for future cash flow projections.

TIP: Download our free small business plan worksheet to help organize this information.

3. Closely Monitor Your Accounts Receivables

Another way you can improve your company’s cash flow is to pay close attention to your accounts receivables. If you forget to collect payment from customers with outstanding balances, it can have a negative impact on your bottom line.

Assign an employee the task of contacting customers who are behind in payment if you have a large amount due. You can also offer customers extra incentives to pay their entire bill up front in the beginning. Or you can create a system that allows you to bill clients immediately when they receive your goods. Try to avoid giving them the option to pay in net-30 or 60 days if possible.

4. Renegotiate Your Account Payables

You can also renegotiate your accounts payable. Call your suppliers or vendors and try to work out a deal. If you currently have a net-30 payment term, ask if it can be changed to net-60. They may agree to extend your payment terms.

Whatever payment terms you agree to, try to avoid missing a payment so your company won’t have to pay unnecessary late fees.

5. Try to Get Better Deals

Next, try to get better deals. You can save money by purchasing office equipment secondhand. Go to Craigslist and look for advertisements that offer free office furniture and supplies. You can also contact companies that have “going out of business” signs on their window and ask if they would be willing to give you a discount on their items.

Look for better deals on your company’s business insurance and other expenses. The more creative you are with looking for secondhand supplies and materials, the better.

TIP: Our business insurance experts can help assess your business insurance needs and provide an affordable, customized quote.

6. Hire an Accountant

A qualified accountant can examine your cash flow and give helpful tax advice. They can also analyze your financial data and generate useful reports that can give you a closer look at the financial health of your company.

Contact us today for more information. We would be happy to speak with you during a consultation and learn more about your business needs. We can help you get the right insurance coverage for your company and save money along the way.