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8 Cash Flow Management Tips for Entrepreneurs

Entrepreneurs have to carefully balance the money coming in and out of their business. Here are a few tips to help you manage the bottom line.

Key takeaways:

  • Cash flow is the money that comes in and out of the business, culminating in net cash after expenses are paid.
  • 8 cash flow management tips for entrepreneurs:
    1. Plan expenses carefully
    2. Encourage rapid payment
    3. Account for fluctuations in projections
    4. Issue invoices quickly
    5. Know when to cut or control costs
    6. Take advantage of payment terms
    7. Plan for the worst
    8. Accept that there might be tight months

Cash flow management can make or break a small business. In fact, 82% of small businesses end up failing because of cash flow mismanagement. So, what does this mean for you? Get on top of cash flow before it becomes a major issue!

Fortunately, there are steps you can take to increase your chances of success.

Let’s walk through what cash flow is and eight tips to help you get on top of everything that’s coming in and going out to ensure a healthy bottom line.

What is cash flow?

Cash flow is how money moves in and out of your business. It represents the net amount of cash you have after it comes in (inflow) and expenses have been transferred out (outflow). The goal is to maintain a positive cash flow, meaning there’s always money left over after expenditures.

Cash coming in refers to income from your actual operations, investing, or business financing, like loans. Expenses will include bills, operating costs, employee wages, and the like. 

Small businesses get into trouble when they think they’ve balanced everything out, but surprises ensue. For example, say payment is due on a bill, but you haven’t received a timely payment from clients to cover it. This lag can significantly impact cash flow, and it’s often hard to get back on track.

8 cash flow management tips for entrepreneurs

Entrepreneurs face unique challenges when running a business. Success or failure is usually placed solely on your shoulders, and not all business owners are the best at financial management. However, there are proactive steps you can take to stay on top of cash flow and make sure you are managing your funds appropriately. 

1. Plan expenses carefully

It’s important to not only include an upcoming expense in the budget but the exact date that funds will be needed for that outlay. When will the money be spent, what will the total cost be, and what is the expense? 

Carefully record all this information, so there are no surprises, and you can plan out cash to cover these costs accordingly.

2. Encourage rapid payment

Consider offering an incentive or deal for customers or vendors who pay quickly. Perhaps you will allow for 15 days, but they’ll get 2% off their next order for paying within two. They’ll love getting a discount, and you’ll have the cash on hand faster. Similarly, stated penalties for late payment could also work—but be sure to check your state’s usury laws for the maximum percentage you can legally charge.

3. Account for fluctuations in projections

When planning out the months ahead, remember that many industries have seasonal fluctuations in sales. This is hard to predict if your business is new, but remember to plan for ups and downs instead of assuming that every month will be the same. 

4. Issue invoices quickly

One way to get paid faster is to send invoices promptly. This may mean putting a better billing system in place, including an automated system that generates and sends invoices for the business. Or invoice as soon as a transaction occurs so you won’t forget later. However you do it, make sure you’re not the cause of delayed payment.

5. Know when to cut or control costs

If you see that expenses are growing faster than revenue, it’s time to take a closer look at how to cut back. Examine everything you’re spending money on, and identify areas where you can hold off on a service or find a cheaper vendor. There is almost always something that can be eliminated or reduced to balance out cash flow when you notice it trending the wrong way.

6. Take advantage of payment terms

For bills or payments to creditors, take full advantage of the payment terms. Instead of paying early, waiting until payments are due can help retain cash as long as possible until more income is coming in. Just be sure you plan out these dates carefully, so everything aligns correctly.

7. Plan for the worst

Even if you don’t have a significant business savings account to help you in a pinch, you can set up something with your bank for the future. Arranging a line of credit up to a limit whenever you need it is one option that’s useful in an emergency. You may also be able to work something out with your vendors if you’ve built up a strong relationship with them. Many will want to help if you face a hardship, so they keep your business.

8. Accept that there might be tight months

Hard months happen, especially for new entrepreneurs. So, remember that it is common, and you can recover. Take another look at what went wrong and how to avoid it next time. 

Optimizing cash flow is not always easy for small business owners, but careful planning is the best solution. 

If you need assistance with business strategy and tax optimization, talk to the experts at Provident CPA and Business Advisors. Contact us to learn how we can help you create a successful long-term plan.

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