Cash flow for small businesses is crucial to your long-term success. Managing small business cash flow empowers you to:
In this guide, we’re going to outline the importance of cash flow for small businesses, tips to improve cash flow and more.
If you’re new to business or the accounting side of things, cash flow for small businesses is simply the amount of cash coming in and out of the business, impacting liquidity.
What does cash flow mean in business?
Cash flow management for small businesses is important because liquidity will impact decisions. For example, if an SMB has $100,000 in cash sitting around, they can use some of it to:
However, if a business starts spending money it doesn’t have, it can lead to negative cash flow. Covering short flows means having to secure some form of financing or missing debt payments. Businesses that cannot pay their bills may experience high interest rate charges on missed payments, lost contracts and more.
But cash flow for small businesses can also be forecasted, and these forecasts are equally important.
Cash flow for small businesses isn’t a one-off calculation. For example, many businesses will run a cash flow statement at the end of their quarter. Why? They want to have a general idea of how much liquidity they have.
However, small businesses must do more to control their cash flow.
Cash flow forecasts can be run for a business to:
Small businesses run on low cash flow, and when they’re just starting out, they often “live sale-to-sale.” In fact, the reason that one-in-three businesses fail within the first two years of operation is that they don’t have enough cash.
Poor cash flow management for small businesses is just as concerning as not having enough cash flow.
Why do small businesses fail?
Of course, there are other reasons businesses fail, but most will go back to a lack of cash flow. Without liquidity to pay off debts, workers or for materials, every business fails. Running cash flow forecasts allows businesses to have an idea of where their cash position will be at the end of a timespan to make changes to help the business thrive.
Cash flow for small businesses requires proper management. If you work to manage your cash properly, you can often increase cash flow. A few of the ways managing cash flow can help a business include:
If you need additional cash flow help for small businesses, the tips below will help you make smarter choices with your cash.
You can work to improve cash flow for small businesses, too. The tips below will help you begin increasing your cash flow even if you don’t have any additional inflows coming into the business.
Bookkeeping is a fast way to routinely manage your business’s financial transactions. You'll need to have strong bookkeeping to work through the following steps.
Managing your cash flow means knowing where your business stands financially. This means that you need to:
You’ll then use this statement in the next point.
Analyzing your statements is the next step in your management process. You want to know:
Once you analyze statements and understand where money is going in and out of your bank account, you can then start to take action – if necessary.
If cash flow is negative or low, you’ll want to find ways to improve cash. You can do a few things to boost your cash:
Cash flow is always going to be the most important factor in keeping your business running smoothly. If some customers pay invoices late and they continue to do so, this will negatively affect cash flow.
Work through these issues by potentially “firing” clients or negotiating terms to force faster payment terms on clients.
Positive cash inflows are always going to help a business increase cash flow. However, outflows (expenditures) are always going to reduce your net cash flow. One way to help your liquidity is: reduce expenses.
One way to reduce your expenses is to:
You can opt to negotiate contracts to be in your business’s favor, possibly reducing costs by agreeing to buy in bulk. You may also need to cut back on your workforce or consolidate loans.
The following tips for cash flow for small businesses can help you keep more money in the bank and improve cash:
The tips above will offer you an easy, fast way to get your cash flow under control.
Choosing software to help you manage cash flow for small businesses can be challenging. With so many options available, it can be difficult to choose the right software. The following recommendations will help you choose appropriate software from the start:
Of course, when choosing the platform that you’ll trust for your cash flow needs, you also want to use an app that has a neat interface and good customer service. The customer service agents should be helpful and willing to answer all of your questions.
If customer service is unresponsive, they won’t be there to help if you have any major issues with their solution.
Cash flow for small businesses has never been easier than it is with Cash Flow Frog. We help you make sense of your cash flow with a revolutionary platform that will rapidly help you:
You can even connect your accounting software and data with the best cash flow forecasting software for small business to make generating cash flow fast and easy.
And you can begin using our platform for yourself for free.
You may be interested: