Cash flow is a major problem for small businesses. The SBA reports that 82% of small businesses close because of cash flow issues.
Small business finance isn’t something they teach in school. It’s something you have to figure out on your own. Without these skills, you put your business in jeopardy.
You can’t pay your vendors, employees, and take care of the essentials without operating cash flow.
Fortunately, you’re in the right place to do something about it.
Keep reading this guide to learn about small business cash flow management.
1. Automate Invoicing
Are your cash flow problems related to late payments? It’s one of the challenges of running a small business.
You wait for payments from clients so you can meet your obligations. If you don’t make those payments on time, you end up with late fees.
Assess your collections procedures. Automate invoices, payments, and collections process. For instance, you can create automated invoices and recurring automatic payments.
For customers that don’t have recurring payments, automate payment reminders. You’ll increase your chances of getting paid on time.
Another strategy is to use discounts for early payments. A customer that pays three to six months in advance can get 10% off.
That incentive encourages clients to pay ahead and give you much-needed cash flow.
2. Adjust Operations
Take a look at your operations. It’s possible that you can make them more efficient to improve operating cash flow.
If there are bottlenecks in getting products out there, resolve them as quickly as possible. Examine the percentage of returning customers vs. new customers.
You want to have a balance between returning and new customers. A business that only has new customers spends more on marketing.
3. Pay Attention to Expenses
Company expenses are difficult to track when you have employee expense reports. Employees need to have leeway to do their jobs.
They can’t run wild with your wallet. Give people in your organization a spend management card. Take a look at Bentoforbusiness.com as an example.
You can set limits on cards, restrict payment categories, and save time reconciling expense reports.
It’s easy to see and control how your employees are using operational cash for their work.
4. Prepare Cash Flow Statements
Cash flow statements show you how much money moved within your business. It’s a simple way to track inflows and outflows.
You’ll put your opening balance at the top of the statement. Add up the cash you know you have coming in. Add up the operational expenses and subtract them from your income.
That tells you how much cash you have leftover at the end of the month. Do this monthly and quarterly and make adjustments accordingly.
Strategies to Improve Operating Cash Flow
If you can master your operating cash flow, you can create a sustainable business. There are a few things you can do to improve your cash flow.
Pay close attention to business expenses, improve your invoicing system, and be more efficient. Do these things consistently, and your cash flow position will get better over time.
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