8 Tips To Effectively Manage Cash Flow For Your Small Business

You sell a product or perform a service. The customer pays you. You pay vendors. Cash flow cash shmo…You’ve got this!

Or…do you?

If those first three sentences sum up your knowledge of cash flow, then you have more to learn, my friend. But it doesn’t have to be scary or overwhelming. In fact, I’ve worked hard to make it easy for busy business owners to understand. 

You see, cash flow management is a financial tool. To use it successfully, you need to have the right strategies in place. 

And if done correctly, you can start making your money work for you. 

What Is Cash Flow Management?

In its simplest definition, cash flow is the movement of money in and out of your business. However, good cash flow management means preparing for slow months and unexpected events. It also means following certain processes to ensure you get the most bang from every buck. 

Set your business up for success and download my guide, 6 Mistakes Every Business Owner Needs To Avoid, today.

1. Proactively & Efficiently Monitor Finances

While I absolutely suggest hiring a bookkeeper and tax accountant, you still need to consistently monitor your finances. Think of the tasks you outsource to financial professionals as teamwork. You never want to pass financials off to someone else and never look at them again. Instead, you should sit down with your bookkeeper weekly, every other week, or at the bare minimum, once a month. 

Moreover, utilize software like QuickBooks to have consistent oversight of your finances. Even if you pass the tedious tasks on to your bookkeeper or other outsourced help, you should still watch the numbers very closely. Assume that errors will occur and be on the lookout for them. Not correcting financial errors in time could lead to serious repercussions come tax season. And any fines could set your cash flow back.

2. Give Your Employees What They Want…The Ability To Work Remotely

The days of working alongside others in an office space seems more antiquated than ever. Not only does working remotely give your employees the flexibility they crave, but you can also cut down on overhead. 

With employees working remotely, you can seriously cut back on rented space. Many businesses are operating out of shared workspaces. This allows for a workspace for the employees who need quiet away from their homes. And it typically also provides a conference room and other amenities that you’ll need every once in a while.

If you don’t think your employees will work well out of view from your watchful eye, I suggest taking a deep dive into how your employees feel about that. A lack of trust can lead to higher turnover, costing you more in the long run. Furthermore, with video conferencing as the new normal, your team can still meet regularly. Even the most scrutinizing of micro managers can track employee productivity. But I suggest trusting your employees and focusing your energy on growing your business. 

3. Rent Equipment & Space Rather Than Buy

If your business requires a storefront and/or expensive equipment, don’t be so quick to pay for these items in cash. Even if you can afford to make large purchases this month, most business owners are better off putting extra money away in a rainy day fund.

Renting space and equipment has other advantages, too. For instance, if your state has property taxes, you could save thousands through leasing. And with the right lease agreement, you may be off the hook for maintenance fees. Plus, some office buildings will even pay for small items like light bulbs. Don’t forget that large equipment usually requires consistent maintenance, too. Do your homework and see how much money you can save annually through leasing options!

Need help understanding the basics of business finances? Download my guide, 6 Mistakes Every Business Owner Needs To Avoid, and get started today. 

4. Ask Vendors To Extend Payment Deadlines 

If your sales forecast predicts you have an upcoming slow month, reach out to your vendors ahead of time. Especially with notice, most vendors will likely be ok with extending your payment deadlines without a late fee. 

If a vendor is willing to make the extension a regular thing, take advantage! The longer your money sits in the bank, the more interest it earns. Whether you have a slow month or not, make sure to pay your bills on the last day possible without incurring a late fee.

5. Incentivize Customers To Make Early Payments

While you may come across some generous vendors allowing you to make late payments, try not to offer that yourself. 

In fact, it’s better to give your customers incentives to pay early. Have you noticed a recurring theme about making your money work for you by leaving it in the bank for as long as possible? Well, that’s what this tip is all about. 

Incentives can include:

• Discounts for future orders or 1-3% discount on current order if paid within X days (make sure you’ll still see a profit after the discount)
• Free delivery
• Prioritizing their service order
• Enter them in a drawing for free lunch hosted by your business

However you choose to encourage your customers to pay early, make sure you’re not positioning yourself to lose money. This is all about cash flow, remember?

6. Lease Your Unused Equipment

Do you have extra equipment collecting dust? Or has your business since pivoted, and you won’t be using certain equipment for a while?

Consider renting it out! For instance, a bakery may have multiple industry grade mixers. If the order load and staff don’t require all of the mixers, find someone who may want to rent the extra one. 

Not only will you be freeing up space in your business, but you’ll also be bringing in additional funds. This is a great way to make up the extra cash if orders are slow.

7. Outsource Tasks Rather Than Hire Full Time Employees

Does your business need help in certain areas, but not enough to warrant a full time employee?

Then consider outsourcing these tasks to freelancers or contract workers. Full time employees are more expensive and they rightfully expect you to handle the W-2 taxes and provide health insurance. If your business isn’t at that level yet, outsource your least favorite tasks and focus on the ones that bring you joy. 

8. Make Sure Your Prices Are Right

Especially for newer businesses, business owners sometimes think they need to offer lower prices than their competitors. But you didn’t start your business to run a charity. 

While your heart might be in the right place, the success of your business depends on you making a profit. Plus, how will you ever scale your business if you’re pinching pennies to make ends meet?

This is why it’s so important to appropriately price your products and/or services. Harrington Strategic Partners can help you identify the resources to perform market research. This way, you can confidently price your business’s offerings at fair prices that will still turn a profit. 

Successfully Scale Your Business By Effectively Managing Your Cash Flow

Set your business on the trajectory to success with a strategic partner who knows finance. From understanding cash flow fundamentals to effectively scaling your business, you can do it all with Harrington Strategic Partners by your side. 

Moreover, managing your business’s financials is more than just knowing what to do. It’s also about knowing what not to do. To give you a head start, I’m offering my guide, 6 Mistakes Every Business Owner Needs To Avoid, for you to download today.