5 ways to better manage cash flow in your small business
Cash flow can be a sore point for many small businesses. In fact, 82% of businesses fail because of cash flow problems.1 But with upfront management and intentional processes, you can work to get ahead of cash flow problems before they start.
Here are five effective ways to streamline cash flow management for your small business.
1. Create cash flow projections
How can you identify early on that things aren't going in the right direction financially? A cash flow projection can help. If they indicate a problem, you likely have time to correct course before that happens. A cash flow projection is an estimate of how you expect money to move in and out of your business. These projections are usually done on a monthly basis, but they can also be done daily or weekly if a business is struggling with cash flow.
Don't know where to start with creating cash flow projections? This template will help you walk through the process.2
2. Encourage customers to make faster payments
Managing your accounts receivable is an important part of making sure you have cash coming in the door in a timely manner. It's difficult to pay your bills if you're waiting for customers to pay you. Put a process in place to ensure that you send bills quickly, and look for ways to make it easier for them to pay you. Can they pay via ACH or Paypal? Do you accept mobile payments? Mobile payments can be extremely helpful if you're selling products or services in person, since you can get paid on the spot.
You might also want to offer a discount to customers who pay early. Consider discounts such as 1/10 – net 30, meaning customers receive a 1% discount if they pay within 10 days on a 30-day payment agreement.
Did you know that 82% of businesses fail because of cash flow issues? Here are five ways you can get ahead of cash flow problems.
3. Check your vendor payment terms
While you're trying to get paid, your accounts payable balance may be starting to climb. It's a good idea to know the details of your vendor payment terms. Which vendors can you delay paying without being hit with late fees? Slowing down your payments can keep cash in the bank longer to help you weather any cash flow crunches.
4. Manage your inventory process
If you sell physical products, you know that a significant amount of cash can be tied up in inventory. It's frustrating to see unsold products piling up while your bank account is dwindling. If you frequently find yourself in this position, it might be time to make changes to your inventory process. Your inventory management process should make it easy for you to see how much you have on hand, how long it's been there, and when you need to reorder. Consider adopting inventory management software, and explore whether just-in-time inventory management might work for your business.3
5. Stay lean
One of the best ways to better make it through cash flow struggles is to keep your costs low. By cutting unnecessary costs before you're in financial trouble, you'll be able to build up a cash reserve to cushion you through any down times.
To start, review your budget with a critical eye (don't have a formal budget? It's time to create one and this guide can help).4 Start by highlighting any expenses that aren't critical to running your business. With each one, decide whether it's something you want to keep or something you can cut. If you want to keep it, what are different options? Is there a cheaper alternative? Or can you negotiate a better deal? Small changes to your budget can add up to significant savings.
Don't let cash flow issues create problems for your business. Whether you're looking to improve your receivables process or have up-to-the-minute reporting on your bank balances to create better cash flow projections, Synovus can help.
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This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Jef Desjardins, Business Insider, “Here's Why Small Businesses Fail", Business Insider, published August 2, 2017. Accessed July 31, 2019
Score, “12 Month Cash Flow Statement", published January 22, 2018. Accessed July 30, 2019
Score, “Understanding and Using Just-In-Time Inventory Management", published January 20, 2018. Accessed July 30, 2019
Meredith Turits, “How to Create a Business Budget in 6 Simple Steps", Fundera, published January 17, 2019. Accessed August 4, 2019.
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