Small Business Cash Flow: Managing Financials

Small Business Cash Flow: Managing Financials


A phrase that has always gotten on my nerves was the old adage “Cash is King”. As grating as it may be, however, it has never been truer than when it comes to managing the financials of a growing company.

Simply put, cash flow management means delaying expenditures as long as possible while encouraging anyone who owes you money to pay as quickly as possible. Business, however, is not so black and white. It’s because of this grey area that I’ve decided to outline four steps that can help you to keep track of the money coming in and out of your company.

Measure Your Cash Flow

First things first, prepare your cash flow projections. This isn’t a glimpse into the future but rather an educated guess based on your financial history. Begin by adding the cash on hand at the beginning of a period with other cash that you will receive from various sources. In the process, you’ll also get necessary information from salespeople, service reps, collections, etc. Along every avenue, you will have to ask the same question:

How much cash is coming in?

This question will pertain to customer payments, interest rates, service fees and whatever other sources affect your cash flow.

Secondly, you will need a detailed listing of the money that you will need to pay out in expenses. How much is rent? Office supplies? Employee salaries? Taxes? Your end estimate should be based on:

Cash on hand + Expected income – Expenses = Cash Flow Projection

Improve Receivables

In a perfect world, we would get paid the minute a sale was made. Unfortunately, business doesn’t work this way and often it can take upwards of 30-90 days to get payment for a service. There are still, however, things you can do to incentivize customers to pay on time (or early even) and improve incoming cash flow. Some popular techniques include:

  • Offer discounts to customers that pay quickly
  • Ask for payment up front
  • Issue invoices promptly and follow up
  • Track accounts receivable to identify and avoid slow-paying customers

Additionally, there are a myriad of online solutions to help you manage invoices and accounting and get rid of the headache that is billing. A few that we would recommend areFreshBooks for cloud accounting and VeriFone Payment System Management.

Monitor Expenses

Anytime you see overhead expenses growing faster than sales, it’s time to re-assess. Look at your costs and find places where you can cut or control outgoing cash. For example:

  • If creditor’s payment period is 30 days, don’t pay out early
  • Transfer funds electronically as late as possible
  • Don’t always opt for the cheapest supplier – flexibility is always better

It’s important to stay on good terms with your suppliers in order to continue providing the best service to your customers. However, paying at the last possible moment also ensures you have the funds to play with as necessary until your customers pay you.

Manage Shortfalls

As a small business owner, there will come a time when you won’t be able to pay your bills on time. This doesn’t mean you’re a failure, just that your predictions were off. Most important in these circumstances is to detect the problem as early as possible. Bankers are reluctant to lend money to business’ that need cash today. The earlier you detect the problem, the more likely you’ll find an effective solution.

If, for whatever reason, you do find out at the last moment, there are other places you can turn to. Many organizations offer short-term loans for short-term cash flow gaps. This can help you survive the awkward period in between outgoing and incoming cash flow and ensure that your business is around to provide services for the next month and beyond.

So let’s recap –

  • Measure your cash flow
  • Improve receivables
  • Monitor expenses
  • Manage Shortfalls

Have a question? Contact us.

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The Penguin Team

by The Penguin Team on October 25, 2013

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