5 Ways to Manage Small Business Cash Flow


Mark Oswego

Feb 20, 2022


category folder


Accounting & Finance

As the adage goes, you have to spend money to make money. A business that runs out of cash is dead in the water and likely to fail. Some entrepreneurs don't understand until it's too late, but managing cash flow for small businesses is critical to success. We have a few tips that can make it easier.

Collect Fast, Pay Slow

If most of your vendors require you to pay them in 30 days, but you give your clients 90 days to pay you, you have a recipe for a cash flow disaster. Accepted procedures and standards within your industry may preclude you from demanding immediate payment. Still, you need to try and prevent a situation where the money goes out faster than it comes in. You may find you need to shorten your payment terms.

When you pay your vendors and other bills, try not to do so all at once. You're busy, so it's tempting to get them all done once when you have time to write checks. This can crimp your cash, so resist the urge. Instead, stagger payments and take as much time as you can to send your money out the door. It's essential to pay bills on time, but you don't have to pay them all the day they come.

There is a caveat here — don't be penny wise and pound foolish. If a vendor gives you a substantial discount for early payment, utilize it. Early payment discounts are free money that you don't want to pass up.

Coordinate Your Payroll

Preparing Payroll

Payroll is likely one of your business's most significant expenses, so time it wisely. If you notice that your cash flow always increases at the end of a month, a monthly pay period may be a good option for you. Perhaps a bi-weekly payroll can help you fill your coffers before writing paychecks. Local labor laws may somewhat limit your choices, but it's best to tie payroll to peak cash flow.

Changing your payroll timing may prove an excellent cash flow decision, but expect a little pushback from your employees if you change payday. If you get it, it's better to be open and honest about the reasons for the change than it is to try and play coy.

The Art of the Upsell

More customers mean more cash, but recruiting new customers is more complicated than pleasing your existing ones. Growing your business is excellent. But if you're having cash flow problems, focus less on getting new customers and more on how to get customers to spend more. Try offering product bundles, automatic subscriptions, or loyal customer discounts. Do whatever you can to encourage your current customers to spend more with you.

When making an offer to promote customer spending, make sure you're careful with who you offer it. The goal is to increase the cash in your hand rather than inflating accounts receivable. If you have a customer who always pays late, convincing them to buy more may increase your assets on paper but fail to get you your cash quickly.

Get a Line of Credit

Credit Information paper

If you know your cash flow situation may be touch and go for a bit, consider opening a line of credit for your business. This is a good strategy for managing cash flow for small businesses, but using it to its best advantage requires discipline.

Unlike a loan, a line of credit allows you only to take the money you need when you need it. A line of credit is like having an extra pile of cash sitting in the corner on standby. You can dip into it when you need it and ignore it when you don't. This can be an excellent way to get through a lean period, but it's important to remember that you pay interest on any money you take out of the pile.

A line of credit can work well for your business if you borrow limited amounts when needed and promptly repay the loan when your receivables come due. Failure to put the money back as soon as possible leads to high-interest payments that can hurt you more than they help. Al line of credit is an excellent case flow tool but, like all tools, works best when used correctly.

Make Paying Easy

Mobile Payment

To increase your cash flow, make it easy for customers to pay you. Accept payment over the phone and accept as many credit cards as feasible.

In addition to making payment easy, make it lucrative as well. Offering customers a 10 percent rapid pay discount, for example, give your customers a reason to pay you early without cutting too deeply into your profit margin.

This list, while thorough, is by no means a complete list of every cash flow improvement option available to you. Don't wait until you're struggling and stressed out about your cash flow obstacles. Our mission at E-Marketing Associates is to help small businesses grow. So reach out to us today and let us help you grow your sales, which helps with cash flow.

Ready to Grow Your Business?