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Know how to manage your small business cash flow to take control of your company's finances.

8 Ways to Manage Small Business Cash Flow

As a small business owner, you need to manage your cash flow. Without cash on hand, you can’t pay for the things you need to operate your business. To keep your finances healthy, use strategies for small business cash flow management.

According to a U.S. Bank study, 82% of the businesses that fail do so because of cash flow problems. Don’t let your company’s cash flow go unmanaged.

Cash flow is money that funnels in and out of your business. You want to have a positive cash flow. When cash flow is positive, there is more money coming into your business than going out. If you have a negative cash flow, more money is going out of your business than coming in.

8 ways to manage small business cash flow

Does your business have a positive cash flow? If not, use our eight simple steps to manage the ups and downs of your funds.

1. Do a business cash flow analysis

A cash flow analysis is a close look at your business’s incoming and outgoing money over a certain period. To do an accurate analysis of your accounting cycle steps, you must record all your company’s transactions. You can do this easily with online accounting software.

Start with the initial balance of your business funds. Then, use your current cash flow reporting to project your future flow of cash, accounting for all your expected income and expenses.

Cash flow projections do not guarantee the future. But, they do help you accurately estimate your business’s impending finances. A cash flow analysis will reveal if you have enough cash on hand to cover upcoming expenses.

2. Stick to your budget

Your finances can quickly spiral out of control without a small business budget. A budget is a tool that helps you accomplish your goals and make smart spending choices.

Use the budget as a road map for your finances. At times, you may need to stray from your budget plan. Adjust your budget as your business changes and unexpected expenses occur.

3. Increase sales

It seems obvious to increase sales when you want to improve your cash flow. But, increasing sales is easier said than done. You need to make an effort to attract customers to your business.

You can target new customers to increase your customer base. However, marketing to existing customers is often easier and cheaper. Create a relationship between your current customers and your brand. Loyal customers will return to your business and spread the word about your company.

You can also offer discounts to increase sales. Discounted items bring in a larger volume of sales. Customers like to know they are getting a good deal. A discounted product or service can be more appealing than a full-price item.

4. Early payment discounts

Include an early payment discount in your invoice payment terms to give customers an incentive to pay quickly. The discount helps you avoid slow-paying customers and increase your cash flow.

On the other hand, your vendors might offer you an early payment discount. If possible, take advantage of these discounts. When paying an invoice early, make sure you will have enough cash for the upcoming weeks. Paying too much debt at once can leave you short on funds.

5. Cut costs

To manage your small business cash flow, you should review your costs periodically. By doing so, you might find cheaper alternatives to some of your expenses. For example, ask your insurance agent to look for a policy with a lower premium.

Also, make sure you are not paying for unnecessary expenses. Compare your inventory and sales to see if you ordered appropriate amounts. Get rid of costs that you do not need. And, negotiate with your vendors to get lower prices or longer payment terms.

6. Don’t let late payments fall to the wayside

Late-paying customers can be devastating to your cash flow. Stay on top of late payments by reminding customers when their invoice due date passes. You might need to send a collection letter stating the amount owed, items purchased, and payment instructions.

You can also charge interest or a late fee on late payments. Be sure to include these conditions in your collections letter. If the invoice continues to go unpaid, consider hiring a collection agency. Collection agencies keep a portion of the amount owed. Decide if the late payment is worth the cost of using a third party.

7. Keep a cash reserve

Sometimes in business, unexpected expenses occur. Prepare for unexpected costs by setting money aside in a small business cash reserve. The cash reserve serves as an extra cushion for your cash flow.

You can keep a cash reserve in a business savings account. Only withdraw from the account during an emergency. Sign up for a savings account that earns interest. Over time, you will increase your balance without having to do anything.

8. Get through periods of low cash

If you find yourself short on cash when a payment is due, don’t panic. Sometimes, having low funds is part of running a business. There are several steps you can take to navigate through shortfalls and keep your business afloat.

Small business cash flow involves closely monitoring your operating cycle.

You want to take care of a shortage of cash before the problem gets too big to handle. You can catch issues early by monitoring cash flow often.

Be proactive about handling cash shortages and employ some safety nets. Set up a line of credit for emergencies, and only use it when you need to.

Do you need an easy way to manage your small business’s cash flow? Patriot’s online accounting software lets you record all your transactions using a simple cash-in, cash-out system. Try it for free today.

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