How to Manage Cash Flow in Small Business?

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manage cash flow in small business

Cash Flow Management in Small Business


When we talk about managing Cash Flow in a small business, the first question that needs to be answered is What is Cash Flow?

Cash Flow is basically the movement of the funds or cash in and out of your Business.

Kinds of Cash Flows:

  • Positive Cash Flow: When the cash entering in your business is more than the amount leaving your business, the Cash Flow is said to be positive.
  • Negative Cash Flow: When the cash leaving your business is more than the cash or funds entering your business the Cash Flow is said to be negative.
While Positive Cash Flow is considered ideal or beneficial for the small business, the Negative Cash Flow is considered as a bad sign or simply a problem.

In managing cash flow in a small business, unreliable cash flow could be disastrous, even a short-term cash flow problem could make the payment of purchases and employees tough and end up in shutting down of Business.

Hence, the need to deal with it as soon as possible arises, in this article we are going to discuss the strategies to fix the Cash Flow Problems.

The cash flow management issues could be resulted by many reasons like- a slump in sales, seasonality, unexpected expenses, or late payments by clients.

Following are the strategies that could help you in getting over the Cash Flow issues in your Business-
  • Short Term Financing
Many Banks issue Business credit cards that could be used to pay the vendors. Line of Credit - short term financing can be used to make the emergency purchases or could be helpful in the smooth flow of business between payables and receivable period.
  • Help Your Customers Pay faster
You can take control and close the gap between sales and payment through the following techniques- - Invoice as soon as you complete the work, If you have big projects you can arrange billing on a monthly basis. - Find out how your customers are willing to pay and facilitate payments in that way. - Use invoicing tools
  • Keep an eye on your Invoices
Keep an eye on your invoices, so you can know which bills are outstanding and which ones are getting close to the outstanding date, so the client could be contacted for payment ASAP.
  • Build a Relationship
Knowing about the person who cuts your checks could be a great asset for your business. If you get to know the accounts payable staff you could be in a stronger position to get answers about your payments in processing cycles and hence, methods for obtaining payments accordingly could be used without delay.
  • Savings could be your Knights in shining armour
One way to get rid of the cash flow problems is to maintain your savings for such times. This isn’t easy is you are worried about not having enough cash. Most of the financial planners recommend Business owners to have at least 3 to 6 months of savings in place to cover their required expenses, But it depends on your own comfort level. You can start small and increase the contribution over time, You can also use Cash Flow Forecast to chose your Saving Plans.
  • Be Strategic About Your Growth
Growth plans that are planned ignoring Cash Flow Problems could result in disaster. Rapid growth could result in cash flow issues, as investing in new employees, material, and machinery could be a real problem.

Don’t say no to the Growth opportunities, but keep an eye on your Cash Flow Forecast. Ask yourself if you are making a profit? How long will it take to collect it? Do you have funds to manage the cash flow? If yes, then only take the step forward.

These are some ways you can help your Business to manage the Cash Flow Issues, and handle the funds more effectively and hence, helping the Business Grow at a better rate.
Sources - https://www.investopedia.com/terms/c/cashflow.asp
https://economictimes.indiatimes.com/definition/cash-flow
https://en.wikipedia.org/wiki/Cash_flow



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