Successfully managing cash flow allows a business to have the right amount of cash at any given time. Having too much cash on hand means capital is sitting idle. But a lack of available cash can trip up an otherwise growing business. In this article we’ve put together the top tips business experts had to offer to help you improve your business’s cash flow management.
Barbara Corcoran, Entrepreneur & Shark Tank Judge
Borrowing money can be a sound business decision when done strategically and with discipline. But borrowing money without thinking through the consequences can end in business disaster. Think through exactly how you expect your company to benefit from the borrowed cash over the long-term and how likely you are to actually receive the anticipated benefits. See more small business advice from Barbara Corcoran here.
Ty Kiisel, Editor at OnDeck Capital
Capital can be leveraged to help a business grow or thrive, but it won’t stop you from crashing. You can use a short term business loan or business line of credit to bridge short term cash flow problems, but it could cripple your business with more debt if you don’t have a clear ROI or improvement plan. Make sure you plan out how the capital will help your business before you take on the extra capital.
Jeff White, Finance Analyst at Fit Small Business
You can get cash immediately for all unpaid invoices due in the next 90 days to fill a cash flow gap while you wait on your customer to pay. This is called Invoice Financing, or AR Financing, and you can get a line of credit for the value of your invoices from a company like Fundbox. You can learn more by checking out our guide to invoice financing.
Christal Bemont, SVP at Concur
Concur recently found that small businesses receive an average of six duplicate invoices totaling more than $12,000 each month. If you’re not tracking these closely, it would be easy to make duplicate payments. Tracking it all will help you head off mistakes and oversights, and keeping all of that data in a single location will help your whole team be on the same page.
On the American Express OpenForum, you can learn about 12 additional cash flow tips. One of these tips is to offer mobile payment solutions to your customers. This is especially good if you sell products or offers services at your customer’s’ home or office. You can forget about invoices and instead get paid right on the spot with mobile apps that can use a phone or tablet to swipe credit and debit cards.
Caron Beasley, Contributor at the Small Business Administration
Using a business line of credit will give you a cushion of available capital to use when it’s necessary. The best part is that you don’t have to pay for any portion you’re not currently borrowing. You should apply for a LOC before you think you may need it, because it can work as an emergency credit line to use as you please.
Michael Burdick, CEO of Paro
High profits for a particular month don’t necessarily mean that you have the cash in hand to pay your expenses when they’re due. Make sure you establish clear, efficient, and speedy processes to collect customer payments, and take advantage of any flexibility your suppliers or creditors offer you. Maximize the use of your profits to have the cash when you need it.
William Edwards, Iowa State University
A cash flow budget is an estimate of all cash receipts and all cash expenditures that are expected to occur during a set time period. A cash flow budget forces you to think through your plans for the year, and it forces you to test those plans to see if they have a high likelihood of success. If not, you can change your plan before it fails.
You can use a cash reserve or business line of credit to get you through the hard times of common cash flow gaps. You can use the cash to pay off immediate debts that pile up from completing the work you’re waiting on payment for, or to take on additional work without waiting for payment of previously completed jobs.
Carson Yarbrough, Consumer Insights Specialist at Offers.com
Business credit cards can be a great help for those who are about to start a new business as they can be used to track expenses from day one, and provide lots of opportunities, incentives and cash back rewards for your business. Not only do business credit cards give you net-30 terms, but they can also plugin to your accounting software and can keep your expenses in one account. This can streamline your accounts payable process.
Finance professionals use forecasting to help them properly manage the cash of a business. You can identify financial trends using digital tools, and you could have a clear picture on where your company stands in the market. All of this can lead to better decisionmaking, which could impact your cash flow in a positive way.
Troy Hazard, Founder of 12 Businesses, President of the Entrepreneurs’ Organization, and Author of Future-Proofing Your Business
Manage your cash flow by getting into a financial rhythm in your business with weekly/monthly/quarterly cash flow planning. Monthly performance indicators and annual planning events can make everyone on the team more aware of the cash going out the door, and limit unnecessary expenses. Don’t keep your team in the dark, or your risk mismanaging the cash you do have.
One option to increasing cash flow is to offer your customers discounts if they pay early. While this practice may impact your profit margin, it may help your management of cash flow by incentivizing customers to make payments earlier than billing cycles typically require. Your company may also take advantage of this with suppliers and others that you owe.
Matt Baker, VP of Strategy at FreshBooks
Consider accepting electronic payments. Not only does this make you look more professional to your clients, but FreshBooks data shows electronic payments are made 8 days faster than traditional methods. That’s a huge deal when you don’t currently receive regular payments from your customers.
Neil Mclaren, Founder of Vaping.com
Technology allows businesses to operate ‘lean’ and to keep their expenses as low as possible. Analyze each operational process within your business and determine exactly how much it costs your business each month. Look for technological solutions that allow you to perform these tasks cheaper, and implement them as quickly as possible!
You can diversify what products you offer to increase your sales and help with cash flow. If you tie these new offerings into your other products then you could get extra cash with current customers, and attract new customers that may become interested in your main product as well. This is a long term solution, and won’t help with an immediate cash flow gap.
Michael Lewis, Writer at Money Crashers
If you’re working on a large, or custom, order then require a down payment (or deposit) of 50%+ up front. This will prevent you from spending a lot of cash to fulfill the order and then not being able to be paid on your work for up to 90 days. Without a deposit, you also risk your customer negotiating a reduced payment when you deliver.
Richard Gertler, Business Attorney
Remind customers that you expect to be paid on a timely basis sets the stage for them to pay on time. Phone call reminders as well as written reminders reinforces that message. Having a credit card authorization on file which allows for charging of the client’s or customer’s credit card on past due bills helps eliminate the time and effort of collection.
Marty Spargo, Co-Founder of REIZE
Outsource as much as you can to areas that can do the work more cost effectively. When outsourcing work, make sure that there is someone in charge of the person or team that you are outsourcing to that will take ownership of the quality of the output. And make sure that person understands how to be frugal.
Ryan Himmel, Financial Partnerships Lead, Americas at Xero
If your cash flow is causing problems at specific times of the month or year, you may be able to improve the situation without dramatic changes. Consider negotiating different payment dates to your suppliers to better align inflows with outflows. This could spread out your cash flow and give you the breathing room you need.
Catherine Wood, Founder of Unbounded Potential
Start by understanding where every single piece of income is coming from each month, how much it is, and when you can expect it. Next, write down an exact definition of what each cash outflow is (for example, what exact expenses are classified as “training”).When you see how you can make the money work, you become more likely to start taking action and eliminating non-essentials.
Rebecca Kennedy, Contributor at MP Star Financial
Understand your burn rate, which is your negative cash flow. Cash flow tells you how long a company could stay in business without revenue or additional funding. To calculate, you need to include all of your monthly operating costs. This way you’ll know how much the business is spending on a monthly basis, and anything that’s not vital can be cut. You can manage all of these numbers through an accounting system, like Quickbooks.
Bob Shoyhet, Chief Financial Officer
If you find yourself struggling with cash flow then you may want to implement a payment first policy that makes your clients pay before you provide services. If you’re not willing to have such a strict policy, then try invoicing your customers faster. The quicker you can get them an invoice, the quicker they can potentially pay it.
Steven Muntean, CEO of S3 Security
The best cash flow management tool my companies utilize is a simple yet very effective Microsoft Excel formatted Weekly Cash Flow Report. The Weekly Cash Flow Report focuses on three main Key Performance Indicators (KPI’s). The first is your actual beginning of period cash balance, the second is your projected Accounts Receivable (AR), and third is Accounts Payable (AP) to help forecast expenses.
Ian Fitz-Harris, Strategic Development Director at URICA
Chasing outstanding invoices burns time. If you don’t have the processes in place to ensure your customers pay on time, and the discipline to enforce these processes, your cash flow may just dry up. Send your invoices quickly. Put reminder systems in place so you chase outstanding invoices the moment they are overdue. Be thorough – it will save you time. You might also consider adapting your terms so that your customers incur a financial penalty for late payment. Alternatively, offer a discount if they pay early.
You can typically extend many of your payables. You could get net-30 or net-60 terms from your suppliers, if you just ask. If you currently have terms, then try to extend terms as high as net-90. This could improve your immediate cash flow by extending when you actually have to make many of your larger payments.
Over to You
Now that we’ve shared what many industry experts have to say about improving your business’s cash flow, we’d love to hear what you think. Do you have tips or resources that could benefit other small business owners? If you need any clarification or have questions about cash flow management feel free to leave those in the comments below.