How to manage small business cash flow-Top tips for Women business owner

Even in the 21st century, cash is king when it comes to financial management.

If your company is growing or failing, it is essential to control your small business cashflow efficiently, and it is the secret to business survival for many.

You can pay your debts on time with a stable cash flow, maintain your operations and grow your business.

Company cash flow is simply the cash or cash equivalent inflow and cash outflow that leave your bank accounts.

If you have positive cash flow from small companies operations, the amount of money coming in from clients and customers is greater than the amount going out for expenditures.

If the cash leaving your bank account is more than the amount coming in, there is a potential problem, and you may need to improve cash management.

One of the key reasons small companies struggle is not managing cash flow effectively.

Let’s first look at the typical cash flow issues in small businesses before digging into the tips and tricks for improving & controlling cash flow.

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Common cash flow issues

Although your small company is unique, there are specific issues with cash flow management common to most small businesses and continue to occur.

It’s essential to identify the problems before moving to our tips on addressing your cash flow problems.

The most popular cash flow challenges of small companies that we see are:

  • No business strategy for cash flow

As the saying goes, you will fail if you don’t prepare. The ways you can cope with a variance between outgoing and incoming cash flow should form part of your cash flow business plan, commonly known as cash forecasts.

  • Growing exponentially

You can only be the target of the performance of your own. Overnight growth can quickly put you in a situation where the cash is tied up in up-front costs to satisfy upcoming potential consumer demand.

Stick to steady, gradual growth and maintain a close eye on your cash cycle.

  • No monitoring of cash flow estimates

Monitoring the cash in and out flows is essential. The monitoring frequency varies from business to business, like monthly, weekly or even daily.

Top tips for managing cash flow

1. Know your cash cycle

The cash cycle is how long it takes to collect money from customers and pay its suppliers.

If your customers are paying in 60  days and you pay your supplier in 30 days, it means there is a mismatch. An ideal cash cycle is a situation where you collect first from your customers and then use the money to pay suppliers. 

2. Know your break-even point

You need to know how much you must make to break even before working for a healthy cash flow. You’re doing something right if you go beyond the break-even stage. If you fall short (continuously), then there is a concern that requires immediate attention.

3. Clear out inventory

It can help kick-start healthy cash flow by cleaning out old or slow-moving inventory units. To move products quickly, aim to employ sales and scheduled promotions.

4. Even distribution of expenses

Spread your cash outflows evenly over a year. It may be easy to remember to make all of your payments in the same month, but it’s challenging for small business cash management.

5. Have a reserve for emergency cash

Businesses should have emergency cash reserves the same way as individuals should have rainy-day savings.

During economic downturns, this gives you some stability and protection. A decent rule of thumb is to have enough to cover expenses for at least three to six months- the average time it takes to complete a funding round.

6. Appoint someone to track your cash flow

A significant part of running a company is keeping track of your cash flow, but it shouldn’t be the only thing you concentrate upon.

Get a trustworthy employee (or accountant in London) to track cash flow for you, make sure that the figures are always up-to-date, mainly if you go well above or below your break-even point.

7. Upgrade to a software

Decades ago, you had to record every transaction manually tediously to track your cash flow. You have the benefit of technology today, so make use of it! Store your spreadsheets in the cloud or use accounting software for quick access.

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It is essential to handle your cash flow in the best way possible to ensure that you can concentrate on your company rather than its accounting.

Take incremental measures to ensure that the company is prepared for unforeseen ups and downs that can be hard to estimate.

Building and maintaining a sufficient cash reserve gives every company full potential and versatility, allowing its owners to sleep well at night.

Experlu Editorial Team
The editorial team at Experlu is comprised of seasoned financial professionals dedicated to providing high-quality content on accounting and finance. With a wealth of experience and diverse expertise, the team produces insightful articles that have established the Experlu blog as the UK's leading financial and accounting resource. The team includes accountants, auditors, and business advisors who stay updated with the latest industry developments. Their commitment to excellence ensures that Experlu remains a trusted source of information, helping readers stay informed about audit, business, finance, and tax matters.