Money can make anyone feel uncomfortable. But as a small business owner, you need to get a handle on your finances, including cash flow management, so you can grow your business and achieve your goals.
Cash flow management strategies can make the difference in your business between success and epic failure—but it’s not as hard as it sounds to figure out how to manage cash flow in your business effectively.
I teach entrepreneurs the basics of small business finance in my self-guided course, Not Rocket Finance, and one thing that I’ve noticed is that most entrepreneurs have some serious hold ups about money management.
One of the biggest hold ups small business owners have is making money work for them, which often comes down to effective cash flow management strategies.
Your cash flow is an essential part of what keeps your business alive and thriving. Let’s talk about the basics of cash flow management and how to start making your money work for your business.
Small Business Cash Flow Management Strategies
You’ll identify ways that you need to fix your cash flow if you’re running into trouble paying bills on time, which is the biggest sign you have cash flow problems. Then you can start working on improving your cash flow and making cash flow more easily through your business.
Once you’ve done those things, it’s all about how to handle cash flow and using the right strategies in your business to make your money work for you.
1. Solve Negative Cash Flow Days
Cash flow projections give you the advantage of seeing trouble way ahead in the future before it happens so you can fix the problem now. If you spot days in the future when you cash will dip into the negative in your cash flow and not have money at the right time to pay bills, you can anticipate what you need to do to make that not happen.
One way you can make money work for you is investing in strategies that bring in more money so that way you avoid being in the red at some point in the future. That could be doing a promotion or a new marketing initiative to create sales or even changing your pricing strategy.
If you spot a pattern of negative days, you’ll also be able to manage your cash flow better by figuring out what the issues are that can be solved to prevent negative cash flow from happening. It may be as easy as invoicing your clients early, accepting credit cards, or other easy fixes.
2. Anticipate Financial Risks
Another strategy you should think about is future financial risks in your business that may cause cash flow problems. That one client who always pays late? Seasonal slow down in demand? Downturn while you’re building a new product offering? All of those can cause temporary cash flow problems.
If you anticipate these financial problems before they happen by looking at longer term patterns of cash flow in your business, you’ll be able to head them off before they happen. And that means you’ll have a stronger business—and way less stress.
3. Keep a Cash Cushion
How much cash do you actually need on hand to prevent emergencies? Cash flow management strategies can help you figure out when money needs to sit idle to keep your business growing. While you may think “wait, isn’t my money supposed to be out there working for me,” keeping emergency cash on hand is just as important.
A cash cushion is an amount of money you keep to prevent negative cash flow as well as to cover emergency expenses. While it may not be actively working for you right now, it’s a security that your business won’t fail if the unexpected happens.
Knowing your routine expenses can help you figure out just how much to save in your cash cushion and how much is too much. You want to strike a balance between saving the right amount to save your bacon if needed and saving too much so your business is not growing as quickly as you could be.
4. Coordinate Payments to Save Money
Another overlooked cash management strategy is deciding to pay annual or monthly payments for your software. Most business owners don’t give a lot of thought to whether paying for annual or monthly subscriptions is a better choice—and it can end up saving you a lot of money if you have good cash management strategies in place.
Say, for instance, you know that you’re consistently close to a neutral cash management where your expenses and income in your business are almost equal month to month. You may be one step away from disaster if you need software to do your job but can’t pay for it because a client was late in their payment. Not only can you prevent your essential tools from being shut off when you don’t pay, you can save money on an annual plan instead of monthly subscription.
5. Setup Systems to Get Cash Faster
Investing a small amount of money into better systems to get you paid faster can also put your money to work for you to better manage your cash flow. If you’re still manually invoicing clients and have to chase them down for every payment, not only are you wasting a lot of time, you’re adding a ton of stress to your life and business.
Paying for software or credit card fees that makes bringing money in faster is essentially paying to get money to you faster. If you’re struggling with cash flow management, these kinds of tools can make a huge difference in your business for just a few bucks a month.
6. Monitor Your Cash Flow Consistently
If you have no idea what your cash flow is doing, you’re going to have a hard time maintaining positive cash flow in your business. One of the best strategies to get a handle on your cash flow is to consistently check in on your business’ flow of money and make a habit of monitoring it.
It’s easy to monitor cash flow in your small business with the right tools. I love Float because it makes it quick and easy to run different scenarios of when money will come in and out of your business without having to labor over spreadsheets. I teach how to set up Float in Not Rocket Finance and how to run different scenarios to help you better manage cash flow.
7. Get a Business Loan to Grow
Finally, when you have great small business cash flow management, you’ll be able to know if getting a loan is the right thing for your business growth. You can run projections to see if you’ll be able to make payments based on different scenarios with cash flow projections, figure out how much profit you can generate with an infusion of cash, and other details that can help you make a decision about getting a loan.
Is Your Cash Flow Management in Check?
There are plenty of other cash flow management strategies you can use in your business but these are some of the most common ones I recommend to entrepreneurs.
But if you’re really worried about the financial health of your company or have no idea how your business is actually doing, it’s time for a small business financial health check. Download my free guide to help you identify trouble spots, see how your business is doing, and if you’re on track towards your financial goals.