Own a small business? How you can improve your cash flow management


Cash flow management is crucial to every business, big or small, in every industry. But, especially for small businesses, cash flow management can be the Achilles Heel for an otherwise successful business that is growing.

With nervousness increasing about the overall economy both nationally as well as here in the San Francisco Bay Area, more focus is needed on improving a company’s cash flow. From our vantage point of providing part-time CFO services to a variety of small businesses and startups, we focus on improving cash flow and profitability in addition to sales growth.

A recent article in CSMonitor has some good tips about cash flow management:

1. “Develop cash-flow projections”

As the saying goes, companies don’t plan to fail, but they often fail to plan.

“These [cash flow projections] should be not only in your head but also on a spreadsheet, and keep them as detailed as possible. Projections should include realistic assessments of how much money you expect to have coming in and when.”

2. “Prepare a backup plan to handle short-term cash-flow problems”

Sales growth usually places a strain on cash flow with increasing working capital needs.

“This involves arranging for working capital financing before you need it so that you’re ready to [fulfill] a big order instead of looking for funds. Being proactive with working capital financing allows you to deal with inconsistent cash flows and protects you from shady short-term lenders in your hour of need. “

3. “Keep decent cash reserves”

Too many small businesses withdraw too much cash from their profitable companies and do not maintain an adequate cash reserve.

“As a new business you will not get the best supplier or vendor payment terms. Having some money set aside will put you in a better position to handle the periods between purchasing inventory and waiting for revenue to come in, when bills are coming due.”

4. “Ask for a portion of customer payments upfront”

This can be a huge benefit to improving working capital needs for a growing small business. In addition, carefully managing receivables, payables, and other current assets and liabilities can be crucial.

5. “What are some options when cash flow goes negative?”

“There are several things to do, including analyzing your budget, figuring out ways to cut costs, reviewing your payable accounts, focusing on collecting any past-due payments, and increasing sales and revenue streams. These ideas can be easier said than done.”

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