Must be a valid email address.
Password must be 8-64 characters.
Must be a valid phone number.
Recession incoming? Here’s how you can prepare.
Daily Capital
Home>Daily Capital>Investing & Markets>Pro Tips For Managing Your Small Business Cash Flow

Pro Tips For Managing Your Small Business Cash Flow

  • Check your spending every month as you grow.
  • Make sure to pay your vendors on time, so your liability doesn’t keep weighing you down.
  • Don’t freak out when the going gets tough – tweak your cashflow plan and stick to it.

Every year, hundreds of small businesses fail for one simple reason – lack of working capital. I hate to be a downer, but facts are facts.

When I first sat down to write the budget for my small online shop, I was faced with a stark reality: I would have to manage my small amount of seed money VERY carefully. Even if my business was profitable from the get-go, my profit would be virtually meaningless if I couldn’t pay my bills due to poor cash flow management.

Cash flow is essentially this: the movement of money in and out of your bank account. Your business can have positive cash flow, meaning more money is coming in than going out, or negative cash flow, meaning you’re spending money faster than you’re receiving it.

While initially it may be hard to distinguish between the two, profit and positive cash flow are not the same. A clear understanding of your profit does not equal an understanding of where your cash is going. A business might be profitable on paper, but it can still experience negative cash flow due to poor planning, unpaid invoices, and the like. Business moves that require a lot of cash upfront can also make a profit-rich company cash-poor. So don’t make the mistake of just looking at your profit and ignoring your cash flow, or you’ll be headed for the dreaded cash flow fiasco that drowns so many small companies.

I’d love to tell you that I’ve always had my cash flow in order, but I can’t. Stuff happens. I’ve had more than a few close calls, anxiously tapping my feet as I waited for a payment to clear or a check to arrive in the mail. But with thoughtful planning and conservative spending, those experiences have, so far, only been a few.

Are you eager to try a few new tricks to keep your small business in the cash flow fiasco clear? Here are some tips that I use to keep my company rich in the mean green.

Build A Smart Budget

Some financial experts suggest making a cash flow plan, but I think if you’ve built a good monthly budget, you should have a crystal clear picture of your anticipated cash flow. A good budget shows all of your expected monthly expenses and income. Just build a section into your budget that shows your anticipated account balance per month to stay on top of your cash flow. If you plan months ahead, you should have plenty of warning should you be headed for a cash flow fiasco.

Adjust, Readjust, And Then Adjust Again

If you didn’t meet your sales goal or have a ton of outstanding invoices, it’s time to get real with your cash flow projection. Adjust your expenses if you can, edit your cash flow plan in your budget, and see what you can do to make up for your bad month. Keeping a close eye on your budget and making micro-adjustments to your expenses helps ensure that you aren’t caught totally unaware by a major cash flow crisis down the line.

Plan To Pay With Money That’s Real

Remember what Grandma always said about counting chickens before they hatch? Turns out, Granny was teaching you about cash flow before you’d even opened your first bank account. As much as I’d love to live in a world where vendors always pay on time and sales goals are met every month, it just doesn’t happen.

If you’ve planned to pay all your monthly expenses with money you don’t have in the bank yet, you’ve been counting your chickens. Even in a retail business like mine where I receive payments directly from customers in exchange for goods, I still have to allow for the possibility of returns and cancelled orders. Better to give yourself at least 6 months of wiggle room in the bank so that you aren’t caught with a lot of bad eggs.

Be A Hound But Plan For Payment Delays

When I’m not building my online retail business, I work freelance as a copywriter for the beauty and fashion industries. And if I’ve learned one thing from working as a consultant, it’s that you should expect to be paid late but do everything in your power to push for on-time payments. As soon as an invoice is overdue, I become a friendly bulldog, politely hounding my clients for payment. It sometimes feels uncomfortable, but it’s completely necessary to ensure that I receive the funds that I’m owed.

The same attitude should be applied to delinquent vendors. Treat late payments as an expectation when managing your cash flow, but do everything you can to avoid them. Send an overdue notice immediately after the due date passes. And, if necessary, renegotiate your payment terms with vendors that are notoriously overdue. Build in a late fee or shorten your payment window if necessary. If a vendor or client consistently pays on time, be sure to show gratitude for their honorable business practices.

Put Your Money To Work

Keep the majority of your cash in the account that makes you the most money. Savings accounts, CDs, or money market accounts have the highest returns. Transfer only what you need to pay your bills (plus what you need to meet a minimum balance in your checking account) in order to make the most possible interest from your cash.

Pay On Time…But Just On Time

I take paying my contractors and partners on time very seriously. But, there’s no need to pay weeks in advance of the due date. In fact, doing so can cost you in the long run. If your money is accruing interest (even a teeny tiny amount,) transferring funds out of your account just a week early means you aren’t accruing interest on that amount when you could be! Every penny counts, so pay on time, but just on time so that you’re maximizing the interest potential of your cash. A free tool like Personal Capital comes in handy when you need help tracking your spending and investments.

Start Your Smart Cash Flow Plan

Smart cash flow planning takes incredible attention to detail. If you don’t have a CPA helping you out, get cozy with your banker so you have someone on your team if the going gets tough. They will be able to make recommendations or hook you up with a lender if you are on the brink of a crisis. Most small business owners will experience cash flow problems no matter what their profitability is. So go easy on yourself—but also keep an eagle eye on your budget and your spending to ensure that you’re doing everything you can propel your business to success!

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Annalise Moberg is a freelance copywriter and content creator based in Los Angeles. She is the co-founder of Larkspur Company, a lifestyle blog that explores the cultivation of mind, body, and spirit. Later this year, Larkspur Company will open a digital store that supports emerging female business owners and creators, tells their stories, and connects them with a kindred audience of inspired, dynamic women.
Icon Close

To learn what personal information Personal Capital collects, please see our privacy policy for details.

Ask Us Anything

We want to hear from you.

What finance question is burning a hole in your pocket?

Thank you for sharing what’s on your mind!

Our team will be in touch shortly.