How to Better Manage Cash Flow In SMBs

Cash is the lifeblood of any business organization. Yet, many business owners misguidedly focus on profits, unaware that cash flow management is the key to surviving and thriving in today’s market. If your cash flow is in order, your business will not only be able to stay afloat, but also make investments, sharpen the competitive edge, and get on the fast tracks to sustainable, long-term growth. So, it is time to step up the game and get a hold of key metrics.

Two sides of the same coin

Sooner or later, SMBs tend to run into cash problems. The biggest one is perhaps running out of cash, a situation where you are unable to pay suppliers, salaries, and materials. This problem occurs when you have to pay your suppliers but you still haven’t received money from your customers. Cash flow management is a way to bridge this gap and patch up the holes.

The term cash flow refers to the movement of funds in and out of your business. It is tracked on a weekly, monthly, or quarterly basis and can be positive or negative, which is pretty self-explanatory. Note that cash flow does not include just profit and loss statements, as it encompasses other financial figures such as account receivable, capital expenditures, taxation, accounts payable, and inventory.

Thus, small business owners have to figure out inventory needs, how many invoices are overdue, and the amount of cash tied up in work in progress. Get into bookkeeping, spreadsheets, and accounting to uncover the patterns of cash inflows and outflows. Strive to anticipate risks and hurdles in advance and prepare for them. Financial experts at Pherrus can help you with these steps. Create a separate bank account for the business and try to always keep some buffer money around.

Financial tactics

Basically, you should postpone outlays of cash and entice customers to pay you sooner. The goal is to always have some working capital at your disposal, which you can use to fuel operations. So, collect data on your expenses and income and conduct a breakeven analysis. Furthermore, one has to ensure not only sufficient financing, but also the right type of financing. There are various types of flexible cash flow finance options so do your homework to determine the best cash flow solution for you.

Short-term financing such as lines of credit is a sound strategy for acquiring funds for emergency purchases and overcoming discrepancies between payables and receivables. On the other hand, long-term financing involves loans that are used to make large purchases of equipment and real estate as well as pave the way for business expansion. The payment can be spread over a period of time, which means that you pay more because of the interest rates.

Tricks of the trade

Likewise, to mitigate the impact of late payments, there is an option to bill as soon as possible and speed up the recovery of receivables. It might also be a good idea to rethink billing practices and increase their frequency and predictability. Progressive invoicing is a nice strategy for big orders, as you can rely on deposits and percentages of the payment at various milestones. It certainly pays off to stay in contact with the customers and offer them incentives such as discounts in order to make the payment process run smoothly.

There are some other tactics as well. For example, see if you can liquidate cash linked to your assets: Sell unused equipment and obsolete or excess inventory for a quick financial injection. Delay your payables as much as possible without ruining your relationships or provoking late fees. Trim the expenses and do not postpone invoicing customers. Always be vigilant and keep your eyes open for innovative ways of staying on top of the cash flow game.

Head above water

The financial side of running a business is pivotal to the success of SMBs. It is of the utmost importance to grasp the full picture of all drivers of cash because you cannot get a grip on what you do not measure and keep track of. Hope for the best and prepare for the worst. Implement better systems for managing the flow, accomplish much-needed stability, and sustain the growth of your stockpile of cash. Get into the positive zone and steer away from financial pitfalls.


Dan Miller
Dan Miller
DAN is a Payments officer with nearly ten years of experience in banking and international payments in the Australian banking sector. He has a masters degree in finance and banking. He is married and also a father of a beautiful little girl.

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