May 9, 2023 11:30:00 AM | 8 Ways for Small Business Owners to Manage Their Cash Flow

Successful small businesses need more than profit to thrive. Business owners also need to understand where their money is coming from and where it is going. With so many moving parts, it’s not always easy to stay on top of your cash flow to ensure you have the funds to cover expenses. With the right tools and processes for managing your cash flow, you can make your money work for you — not against you.


Send Invoices Quickly 

Your customers ultimately have more control over when you receive payment than you do, but sending invoices as quickly as possible can help minimize delays so you can receive and use your funds sooner. 

Invoices should be sent as soon as orders or services are fulfilled. That invoice should also include clear guidelines regarding payment deadlines as well as the consequences (such as late fees) if the invoice is not paid on time. 

Sending reminders leading up to the due date will decrease the likelihood of a missed payment — which is good for you and your customer, if it stops them from incurring a costly late fee. 

And while we hope they’re never needed, additional reminders after the due date has passed should be sent as well.

Offer Different Payment Options 

Everyone has their preferred payment method. You may prefer paying (and getting paid) by card, but that doesn’t mean it should be the only option you offer. 

Customers will have an easier time paying you sooner if they have the flexibility to pay in whatever way works best for them, especially if it allows them to avoid extra fees. This flexibility can improve the stability of your cash flow by reducing the amount of time between sending an invoice and getting paid. That means more money in your bank account, sooner! Plus, if one payment method is causing an issue (if, say PayPal is down) then customers will always have another option. 

Keep Detailed Records of Payments and Expenses

Even a seemingly small error can have significant ramifications on the accuracy of your cash flow documentation. Keeping detailed records of every transaction makes it easier to find and fix mistakes (such as inconsistencies between incoming and outgoing funds). 

The earlier you catch a problem, the easier it will be to fix, too. Fixing an error from yesterday is relatively simple. Fixing an error from months ago (and all the errors caused by that error) is not. 

Schedule Your Payments Effectively 

Submitting payments as early as possible may seem like a good idea, but it can be better to wait until shortly before they are due to maximize the amount of money in your bank account at any given time. Making a month's worth of payments before you’ve received that month’s profits could leave you in a tough spot if unexpected expenses arise. Although it is important to avoid making late payments, waiting until a few days before the due date can make it easier to avoid spending money you do not yet have. 

You might consider dividing your anticipated expenses into three categories: those that must be regularly paid on time, those that are important to be paid on time if possible, and those expenses that are flexible. That way, you can hold off on the second and third categories if you can’t currently cover those expenses while retaining a comfortable amount of cash available. 

For example, your payroll and rent must be paid on time, every time. Not doing this puts your team, your building, and ultimately the existence of your small business at risk. These expenses need to be prioritized if you are having problems bringing in more money than you spend. 

Your insurance and utility payments are important, but they typically offer a grace period if you need a bit more time. Bonuses or stipends can also be put on hold if necessary. 

Expenses that can be managed with a payment plan or nice but not urgent expenses like office supplies often fall into the third category. With these expenses, reducing or skipping a payment (or putting a purchase on hold indefinitely) is often possible.

Of course, your ultimate goal should be to save enough to get several months ahead of your expenses. But until you can do that, scheduling payments strategically may be beneficial.

Make Sure You Have an Emergency Fund 

Even the strongest and most organized small businesses can experience problems, and having an adequate emergency fund at your disposal can significantly reduce the impact a cash flow issue has on your ability to stay open.

Customers do not always submit payments on time, rent can increase significantly, and your business may have an unusually low sales month. Having an emergency fund to draw from if your income or expenses unexpectedly change can help you stay afloat and avoid things like layoffs or salary cuts.

Find Ways to Cut Costs 

Any expenses you can eliminate from your budget increase your profit margins. This extra money can then be used to cover expenses you’ve struggled to pay on time, applied to new business ventures, or kept in savings. Even a small reduction in spending can make a significant difference for small businesses that frequently struggle to make ends meet. Take a careful look at your typical monthly and quarterly costs for expenses that are no longer serving your business well.

Cutting costs can also reduce the likelihood of future financial problems if you experience slow sales or increased costs, even if you are not currently having a hard time covering your expenses. 

Remember That Cash Flow is Just as Important as Profit 

Increasing profits may be your end goal when it comes to building a successful small business, but it does not matter how profitable your business is if you do not know how to manage that profit

Not tracking income and your expenses, basing your budget on an above-average quarter, or overspending so much that profit cannot keep up — all of these things will eventually cause financial problems. Honing your cash flow management skills from the beginning is an important step in actually keeping your hard-earned money. 

Use the Best Tools 

Effective cash flow management starts with learning how to track your finances and identifying areas where you may be able to proactively make improvements. 

At Valliance Bank, we offer a wide range of business banking options that can help businesses of any size manage their money wisely. We are here to help you stay on top of the latest financial trends within your industry and make decisions that support a strong and accurate cash flow that helps your small business thrive. Contact us today to learn more about the services we offer.