Cash Flow Management: 3 Best Practices for Small & Medium Businesses

Staying on top of your cash flow is vital to running a small business smoothly. According to a U.S. Bank study, poor cash management is the cause of 82% of business failures. Cash flow is critical to the survival and success of your business. Without it, you cannot hire or pay employees, buy inventory, expand your operations, or secure a line of credit or financing. Cash Flow Management is very important and crucial factor in Business.

1. Understand Your Cash Flow

One of the first things your business should do is get a 360-degree overview of its cash movements and situation. There is a common misconception that profit is the same thing as cash flow. It is not.

Simply put, your business profit equals revenue minus tax and expenses. When you invoice a customer, that counts as revenue, but you will not necessarily have cash. Your business can figure out its profit for the month and find that it has a cash flow issue. To best understand your cash situation, you will need a cash flow statement and cash flow forecast.

2. Increase Sales, Not Expenses

Many things can put a strain on your cash flow. One of the most common is having expenses that are either out of control or simply not justified. Every business has bills to pay. But is yours efficient with its accounts payable?

If you are paying cash for equipment and inventory when there are better options, you could be straining your cash position. Take full advantage of payment terms and segment your expenses between those that are business-critical (payroll, taxes, rent) and those you have more flexibility on payment timing.

3. Help Your Customers Pay You Promptly

Unpaid invoices are a significant factor in small business cash flow. One study determined that the value of small business unpaid invoices is roughly $825 billion, or about 5% of U.S. GDP. Here are some of the ways you can take control of your invoices and shorten the time between billing and payment.

For a small business, unreliable cash flow can be catastrophic. Even a short-term cash flow problem can make it tough for a company to continue operations. Outside of knowing the ebbs and flows of your business, using these best practices can help you effectively manage your cash flow and have the resources available for growth and expansion.

The team at MyaccountsConsultant can help your business with cash flow projections and management. contact us here at your convenience for a complimentary consultation to discuss your business challenges and goals.