5 Cash Flow Management Tips for Small Businesses

Cash flow is the cornerstone of any small business. A healthy cash flow in and out of your business can help you pay expenses on time, invest in new opportunities, and grow your business. However, getting this balance right isn’t always easy. Cash flow management is an issue for most small business owners.

Business owner managing cash flow

photo credit: Tima Miroshnichenko / Pexels

Here are five cash flow management tips that can help you meet your short-and-long term money requirements and boost return on uninvested funds.

1. Monitor your cash flow

Your business needs someone to monitor your cash flow. While the bookkeeper will make daily deposits and update your financial statements, it isn’t their responsibility to monitor cash flow. This is an extremely important role, as whoever monitors your cash flow will let you know when money goes below the predetermined threshold, which is a call for concern.

While your accountant can help you with this, cash flow monitoring should be conducted by a controller or chief financial officer (CFO). If your business doesn’t have a CFO, consider looking for CFOs for hire.

2. Accept e-payments and checks

Asking your customers to use electronic money transfers or checks can help you reduce the presence of cash on your business premises. The more money you store in your business place, the higher the risk of loss and theft. Online payments, such as exchange-traded funds (ETFs) or checks are safer since they minimize the risk of theft and speed up payments at the same time. Although credit cards charge service fees, it’s a chump to pay for convenience and security.

3. Determine your monthly expenses

Knowing how much money you require to survive personally and as a business is essential. Figure out the cash you need to live on and the money your business requires for rent, employees’ salaries, utilities and other expenses. Once you determine these two figures, you will have a baseline to work with. Budget carefully and set some money aside as an emergency saving fund for unexpected events in life or business.

4. Lease equipment rather than buying

While it may be cheaper over the long term, purchasing new equipment and regularly updating them can be expensive and time-consuming in the short term. Leasing your business equipment instead may reduce your short-term financial distress. You will not need to upgrade or sell outdated equipment that you have bought.

Equipment leases also usually qualify for tax credits that can lower your tax burden. Therefore, you will have less money leaving your bank account in huge lump sums and maintain a regular cash flow.

5. Pick the appropriate payroll cycle

Structure your business payroll to match your revenue stream and accede with the state’s wage and hour laws. Small businesses that create daily revenue, such as retail, can more easily offset the cash required for seven-day payroll. However, this can be difficult for a business with a slower revenue stream since cash doesn’t come in frequently.

Your business can benefit from holding the cash to be paid less frequently than weekly, provided applicable wage and hour laws allow you to do so. Consult your state Department of Labor for any requirements for payroll frequency.

Endnote

Managing cash flow is essential for your short- and long-term financial success. Ensure the most of your money by keeping track of expenses, monitoring your cash flow, or using any resources that can make managing cash flow more efficient.

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