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6 Strategies to Manage your Small Business Cash Flow

Finances Tips/How to

Effective Small Business Cash Flow Management

Small business cash flow management is the act of managing the cash that comes into and goes out of the business. Cash flow management is multifaceted, involving monitoring profit versus expenses, analyzing financial data, and taking steps to optimize revenue.
Unfortunately, simple missteps or lacking insight may lead to an inability to cover operational costs or spot trends that help a business prepare for the future. Implementing a few strategies for cash flow management can support the success of any small business. 

Why Managing Small Business Cash Flow is Essential 

According to a survey performed by Quickbooks of 3,500 small business owners, 60 percent admit that cash flow management has been a problem. Further, a Capital One study found that 42 percent of small business owners say that managing cash flow is one of their top concerns. When cash flow is not managed properly, several problems arise, such as: 

  • Loss of stakeholders 
  • An inability to reconcile important accounts 
  • Problems with payroll 
  • Issues investing in growth opportunities 
  • Problems funding existing business operations 

 A cash flow management strategy keeps a small business ahead of the game. Cash shortfalls and potential financial problems can be avoided before they threaten the livelihood of the operation.

Key Approaches to Optimize Cash Flow in Small Businesses

Managing cash flow is obviously important. However, what does effective cash flow management look like in a small business setting? Here is a look at five key strategies for effective management of cash flow.

1. Create Timely Strategies for Bill Payments

Small business owners often make the mistake of paying all outgoing bills at the same time every month. While this sounds logical for the sake of keeping up with outgoing expenses, paying bills at the same time of the month can also mean draining existing cash reserves. Unfortunately, this means if something comes up and funds are necessary for suppliers or unexpected expenses, no funds are available. Paying bills on time is important, but payments should be extended and spread out strategically to better align with incoming profits. Review bills, sort them according to pay-by dates and priority, and stagger larger payments where possible.

2. Opt for a Logical Payroll Cycle

Payroll is often one of the largest, and most important, expenses a small business has. Compliance with Department of Labor laws and regulations is imperative. However, most states do allow for some flexibility as far as payroll frequency and timing. A small business’s payroll schedule should meld well with its revenue stream. For example, a small manufacturing company may not have incoming cash as frequently as a small retail store. Therefore, the payroll schedule should coincide with the less-frequent incoming revenue. Bi-weekly or monthly paychecks may better align with the small business cash flow.

3. Use Lines of Credit Responsibly 

Having access to something like a working capital line of credit through a good lender means quick access to funds as needed. However, getting carried away with a line of credit is also easy. These lines of credit are best used to bridge gaps when cash flow may be lacking. For example, if a small business owner needs to purchase new equipment but cash reserves are low, using credit is viable. Avoid using a line of business credit to make unnecessary purchases or cover payables if funds are available in the business account.

4. Be Attentive to Turnover Times with Receivables

Quick receivable collections improve cash flow. If a small business lags when it comes to collecting payments owed, this may lead to unpredictable cash reserves and an inability to cover expenses. A few ways to make sure receivables are more timely and predictable include:

• Follow proper invoicing practices: Bill promptly, verify receipt and follow up when payments are late
• Ensure payments are convenient to make: Offer online or over-the-phone payment options
• Monitor customer/client accounts: Identify late payments, and enact procedural measures for handling them


If receivable payments are not made in a timely way, this is a good sign that not enough attention is given to invoicing and follow-up in accounting.

5. Simplify Accounting Processes

Several steps simplify accounting processes for small businesses. For example, something as simple as using the best accounting software or technology reduces the risk of human error with input entries, saves time, and yields valuable small business cash flow reports. For small business owners who need more in-depth assistance with accounting, outsourcing a professional accountant is a valuable investment.

6. Bring in the Help of an Outsourced CFO

An outsourced CFO (Chief Financial Officer), also referred to as a Fractional CFO, is something to consider as well. While most small businesses have an accountant, bookkeeper, or rely on a CPA (Certified Public Accountant), C-level advice from a professional with financial management expertise is invaluable.
These well-versed professionals offer strategic guidance where small business cash flow is concerned. The Fractional CFO learns the financial operations of the business, no matter the size, to assist in building a more effective cash flow management plan.

A Final Word On Cash Flow in Small Business

While cash flow management is one of the most prevalent concerns among small business owners, a few tweaks and strategies make all the difference. Thankfully, the A Team may have some solutions to make cash flow management more efficient. Reach out today to discuss how we can help decode the numbers, implement the best technology, and set your business up for financial success.

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