How To Manage Small Business Cash Flow?


No matter the size of your business, managing cash flow is of utmost importance to operate and run your business smoothly (or at least as smoothly as possible!). However, for small businesses, cash flow management is essential to daily operations. Let’s first clear the concept of cash flow and then we’ll move on to managing it effectively… especially from a small business perspective. 


What Is Cash Flow?

Cash flow is a term referred to as the measurement of cash that comes into and goes out of your organization at a specific time. A positive cash flow means that more cash is coming into your organization than leaving it.


Negative cash flow implies that more cash is leaving out of your organization than coming into it. A negative cash flow indicates that you don't have enough cash to cover your expenses, which is not desirable. Working capital refers to having sufficient cash to meet your organization's financial needs. 


In general, cash flow is confused with revenue. However, these two are quite different. Where revenue usually means the amount of income, cash flow takes into account both the income and the expenses. Moreover, cash flow also considers financing activities such as a bank deposit in your account due to a loan, etc. 

Importance Of Cash Flow

Needless to say, cash flow is the lifeline of any organization. Without cash, your organization’s daily operations may get hampered to the extent that managing your organization may seem difficult. Thus, having a decent amount of cash in hand is essential for running your small business. 


The basics of effective cash flow management for small business lies in figuring out when the cash will arrive and where and when it will leave your hands. Once you master the art of cash flow management, you can realize business growth and improve your profit and margins considerably.

How To Manage Cash Flow For Small Businesses?

There is no one size fits all solution for managing cash flow for small businesses. As each organization works differently and has different needs. However, there are certain things that you can follow to ensure smooth and positive cash flow in your organization. 


Follow these simple yet effective steps to manage cash flow -


  1. Monitor Cash Flow

There are several ways to effectively manage your cash flow. But first, you need to monitor and track it. This can easily be achieved with the help of a cash flow tracking software that enables you to generate reports, keep records, and more. Additionally, your cash flow record is on the cloud and thus you can access it anytime anywhere. Making it all the more easy to keep track of your cash flow.


  1. Cash In On Assets

Do you have a lot of obsolete inventory? Or maybe pieces of equipment that are no longer of any use? You can generate quick cash by selling these assets. This is one of the fastest ways to generate cash flow. 

  1. Cut Back On Costs

Cutting back on costs may sound a bit cliche at first. However, if you look closely and analyze properly, you will find that there are many areas and ways in which you can actually cut back on costs. This also includes renegotiating leases and terms of outstanding loans. Likewise, you should check if you can cut back on rent, unused or unnecessary subscriptions, and utilities. 

Cutting back on costs also means paying for necessary expenses at strategic times. This reduces overspending and can be achieved with proper planning. 


  1. Take Help Of Line Of Credit

One of the best ways to tackle cash flow challenges is to take the help of a business line of credit. Most banks offer up to 80% line of credit. In some cases, you may also use your inventory or accounts receivable as collateral. Apart from generating quick cash, the line of credit can also help you with managing your capital efficiently. 


  1. Buy Only When Necessary

Before making a huge purchase, ask yourself if you really need the equipment, inventory, etc. another good question would be, will it be smarter to lease it instead of buying? If the equipment or asset is for short-term usage, then you must opt to lease it. Otherwise buying is the better option. Alternatively, ask yourself if you can delay the purchase so that your cash flow may become more stable. 


  1. Keep Track Of Invoicing

Invoicing is very important and must not be taken lightly. Send out invoices as soon as the product is delivered or the service rendered. Make use of auto-generated invoices for services rendered on subscription models. Designing a simple and short yet straightforward invoice is the key here. Mention all the payment terms clearly. You can also email invoices instead of mailing them to speed up the process. 


  1. Employ Mobile Payment Solutions

Offer a wide variety of payment options to your clients. Make use of technology, digital platforms, and mobile payment options. The wider your payment options, the higher your chances are of getting paid faster. 

  1. Expedite Payment Process With Attractive Offers

Speed up the payment process by offering attractive deals to your clients. For instance, you can offer incentives on payment within a specified time. However, make sure to do the math before offering any kinds of deals. Quick cash is good but not at the expense of loss or no profit. In some cases, l a bit less money is certainly worth the deal in the long run.  


  1. Play Smart

Make use of partial payments or deposits in case of bulk orders or long-term contracts. For instance, you can ask for a certain percentage of the amount upfront as part of the package. Likewise, you can ask for another partial payment when the actual work or production begins. And the remaining can be charged at the time of delivery. This way you can make sure that you have a steady flow of income from one project itself. 


  1. Generate Cash Flow Statements

A cash flow statement is one of the three essential statements that are required to financially operate your organization. Cash flow statements can either be generated by your accountant or with the help of cash flow tracking software. You can also generate it with the help of spreadsheets. 


Use the cash flow statement to analyze your cash flow. The sources of revenue, one-time expenses, recurring expenditures, etc. This way you would understand how money is moving through your organization and where and how can you tap it strategically. In other words, you need to stay updated with bookkeeping.


Cash flow management is essential for any business to thrive. Although cash flow can’t be managed in one day, with a few simple steps mentioned above, you can make sure that your cash flow is steady and positive. The key is to deploy technology and make smart decisions.