Simple Ways to Better Manage Small Business Cash Flow

Guest writer: Amy Collett

In the simplest of terms, cash flow is the movement of money in and out of your business.

Without healthy cash flow, failure is imminent.

Your company can appear profitable on paper, but if you consistently have more cash going out than coming in, there’s simply no way to survive—much less succeed—in the long term.

Maintaining healthy cash flow comes down to implementing the right strategies.

You will likely experience ups and downs, but by prioritizing cash flow management, you can keep your small business in a position for long-term growth and success.

Here are some practical tips to help you get started.


Evaluate your business entity.

First of all, the business entity you operate under can make a significant impact on your cash flow. For example, by operating as a sole proprietor, you will likely receive the lowest tax rates compared to other structures. This is because you will report your business income and deduct losses on your personal tax return.

Starting a new business as a sole proprietorship is also the easiest and least expensive of all the structures. And when you work with an online service, the process of setting up and managing a sole proprietorship is even simpler.


Focus on inventory.

If you run a goods-based business, your inventory is essentially the same thing as cash. When you make only a couple of big purchases per year, for instance, it means that you have more cash tied up as you wait for your products to sell. By making smaller purchases more often, you will have more cash available for paying off debts and investing in growth.


Get paid.

Many small businesses struggle to maintain healthy cash flow because of outstanding receivables. Be proactive about getting paid by your customers and clients. Send out reminders via email and text—one week and a couple of days before a bill is due. And think of ways you can incentivize people to pay their bills early, such as offering discounted rates, exclusive access to new products, and so on.


Don’t be afraid to negotiate.

Another great way to manage your cash flow is to negotiate. Remain willing to negotiate with both vendors and customers. As long as you have a good reputation for paying your bills on time, some if not all of your vendors may be willing to work with you.

For instance, if you order raw materials from a vendor and you know that it will be weeks or months before those raw materials become a sellable product, ask the vendor if you can pay for them a little later. Moreover, if you have customers who make large purchases from you and request to be put on a 60- or 90-day payment program, see if you can compromise and get your money sooner (such as a 30-day installment plan).


Revisit your accounting system.

One of the most fundamental steps in managing small business cash flow is ensuring that you have a reliable accounting system established. This includes maintaining an effective routine and implementing up-to-date software.

It’s essential that your data is current. Make any adjustments necessary so that your accounting system is producing data for your accounts receivable, accounts payable, liabilities, and available cash.

Any business owner is hard-pressed to succeed without effectively managing their cash flow. Remember to determine the best legal structure for your business, and pay attention to how you manage your inventory. Also, stay on top of your customers to ensure you get paid on time, and remain open to negotiating with customers and vendors. Finally, if you haven’t already, put a solid accounting system in place so that you can keep up with hard data and see the actual cash you have on hand.

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