Cash Flow Management Tips for Small Businesses

As any small business owner knows, controlling cash flow is critical to the business’s success. Balancing the books and paying the bills are essential to staying afloat and on the road to success. However, making this come to fruition isn’t easy. Learning and building up the skills to manage cash flow can be difficult if you don’t have a background in finance or accounting. And, when you have a business to run, finding time to learn isn’t easy.

Along with keeping track of your different expenses, you’ll also need to ensure that your cash inflows and outflows are consistently balanced so that you always come out on top.

The difference between the amount of money that comes in and the amount that goes out is known as cash flow. And, if you’re having trouble maintaining your cash flow positive month after month, you’re dealing with one of the most prevalent company cash flow issues—one that can lead to the failure of your business if not cautious.

When businesses struggle with the timing of their costs in relation to their revenue, cash flow issues develop. So, what happens when bills are due, and you don’t have money to pay them? Or if you face an emergency and have no cash reserve to fall back on? Your lack of liquidity and flexibility might be a deal-breaker, as well as hinder you from meeting your essential costs.

The solution to cash flow problems is good cash flow management. But that’s easier said than done. To help you better manage your cash flow, we’ve hit up our team of professional small business accountants to get their best tips. Continue reading to discover what they are.

Get Your Accounts In Oder

First, get your books in order so that you know precisely how much money is coming into and going out of your business. This is the first step to successful cash flow management in any establishment.

By regularly updating your accounting records, you’ll have higher clarity of your business’s financial health and be able to make more accurate projections about its future cash flow. Regular bank reconciliations are also critical. There is a risk of assuming that your accounts contain more money than they actually do.

Keeping track of your revenue and spending is easy using cloud-based accounting software like Xero, QuickBooks, and MYOB. If you need help setting up your cloud-based accounting software, read our post, ‘Which Accounting Software Is Best for Small Business?‘ or call Grow Advisory Group.

Forecast Inflows and Outflows

One of the best ways to better manage cash flow is to know when money enters and exits your business’s bank account. You won’t know what’s causing your cash flow problems if you’ve been flying blind and paying bills or invoices as they come in.

A cash flow forecast or projection is one of the best tools of cloud-based accounting software such as Xero, MYOB or QuickBooks. You enter monthly expenditures, anticipated expenses and revenue projections for the same period. It estimates how much money will come in and out of your business and when it will happen.

Being able to anticipate your cash flow ahead of time will help you stay ahead of your finances, reducing the likeliness of some of the most common cash flow woes.

Get a Business Loan

Staying ahead of cash flow problems can be difficult for small businesses, especially those just starting or growing in size. High initial costs can lead to more money going out than money coming in. However, this isn’t always avoidable.

If you’re having difficulties keeping your cash flow positive, being in debt is the last thing you want. Thus, a business loan or a business overdraft can be a business-saving lifeline. Business loans are easy to use, flexible, and tailored to your lending needs. On the other hand, a business overdraft lets you access additional funds up to an approved limit whenever you need it.

It’s always a good idea to apply for a business loan or a business overdraft, so you have available funds in times of an emergency.

Monitor Your Spending

Getting into debt isn’t necessarily a terrible idea. As outlined above, getting a business loan can be beneficial and provide a temporary solution until your business is robust enough to make it on its own. However, once you incur debt, you must carefully monitor and assess the extent of your cash flow.

While taking on debt might help a small business get through tough times, you should always consider how much debt you can take on to avoid financial ruin.  Along with reviewing your debt and spending, you should keep track of your savings – it is critical to always keep a rainy-day fund on hand in case of emergency.

Lease Instead Of Buy

As mentioned above, small businesses just starting or growing in size experience high initial costs primarily due to the cost of equipment. But purchasing equipment isn’t always the best option. While buying equipment outright may be cheaper over time, you first need to be in a financial position to do so.

Therefore, you may need to adjust your thinking from a long-term investment perspective, such as buying equipment, to a short-term survival mindset, such as leasing equipment.

Leasing equipment might help you save money in the near run. You won’t have to replace or sell outdated equipment; equipment leases typically qualify for tax breaks that lower your tax bill. Consequently, you’ll have less cash leaving your bank in large chunks and a more steady cash flow.

Send Invoices Immediately

Cash flow is essential because it distinguishes between bills you’ve sent and invoices that have been paid. Thus, it’s vital that you keep up to date with your invoicing. The sooner you issue an invoice, the sooner you see money in your account.

Deliver your invoices as soon as possible so that you may obtain money from your clients. For example, consider investing in automated invoicing to enhance turnaround times and eliminate invoice delivery delays.

You may wish to go from a monthly billing model to one in which you issue invoices as soon as a project is complete. For example, if your run a small website design firm, send your invoices once you launch a website or complete a website update rather than on the last day of the month.

Make Payment More Convenient

Provide your consumers with flexible payment alternatives alongside direct deposit, direct debit and cash. At the very least, EFTPOS, Mastercard, and Visa are expected. However, Afterpay and Zip are growing increasingly popular. With ‘Pay Later’ options, you’re at least getting some form of up-front payment, which is much better than getting no payment and wasting valuable time chasing up late payments. To combat late payments, consider applying late payment penalties. You may also consider introducing payment plans to collect payments from struggling clients quicker than waiting for them to be able to pay the invoice in full.

Keep in mind, if you opt for Credit Card and Pay Later options, be sure to understand the expenses of providing these services – convenience comes at a cost – a cost to you.

Negotiate With Suppliers

If you’ve ever had to deal with late payments from customers, you know how frustrating it can be. Your cash flow is hurting, but you still have to pay your suppliers on time.

Asking suppliers for discounts is an excellent way to reduce costs and ease your cash flow burdens. Even the smallest deductions may lead to significant savings in the long run.

Alternatively, if your cash flow forecasts identify that your payments to your suppliers are causing your cash flow problems, contact them to see if they can be more lenient with the due date. If you have a long-term connection, they may be willing to extend your invoice billing period, giving you more time to receive payment from clients.

Conclusion

For any business to continue operating, it needs a healthy cash flow. There needs to be more money coming in than going out and money available when you need it. If cash flow is the number one problem hindering your business, consider some tips in this article.

Such tips include getting your accounts in order, forecasting incoming and outgoing transactions, and getting a business loan. Other recommendations include monitoring your spending, leasing equipment rather than buying it, sending invoices promptly, and making payment convenient for clients.

If you need help implementing any of these cash flow management tips, call the Grow Advisory Group team. We’re more than just accountants! We can handle all your business financial needs, from bookkeeping and accounting to business planning, business advice and beyond. Call our friendly team today on 07 5599 5700.

Disclaimer: The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant and/or financial adviser.