8 Best Practices To Help Business Owners Manage Cash

Whether it was navigating workforce challenges, inflation and margin pressures,  and potential recession challenges, companies have been facing a time where managing cash flow is more important than ever.

Between increased costs and lowered sales, some businesses will find themselves low on cash, perhaps to the point of significantly impacting their ability to meet operating costs.  On the flip side,  businesses that are experiencing rapid growth need to create a scalable infrastructure to avoid obstacles when their business starts expanding, including creating critical cash flow management practices.

All businesses should be proactive in ensuring the accuracy and timeliness of cash-flow statements, fiscal analyses and financial projections. Here are some cash flow tips specifically for times of economic uncertainty:

Understand the Causes of Negative Cash Flow:
The most common reasons a business can experience negative cash flow is either fast growth, gross margin difference (a big gap between sales price and cost of the products sold) or gaps between making sales and paying off expenses like vendor supplies, employee salaries or day to day operations. Any of these issues negatively impacting your cash flow?

Proactive Forecasting:
The best way to stay ahead of difficult times is to be prepared. Every business will experience fluctuations in cash flow and it’s best to prepare income statements, projected cash flow and a statement of receipts and disbursements for the coming 6-12 months. Forbes reported that “many small businesses, even profitable ones, work within slim margins with little wiggle room for large purchases or economic setbacks. Factor in debt repayments, delinquent payments and unpaid invoices and you have a business that’s walking a very tight rope.” One “report suggested that 31% of SMBs have up to two months of working capital, while 58% only have enough to last three to five months.”1  Businesses may need to live and breathe their forecasts every day in order to survive.

Consistent Budgeting:
As a business owner, planning your finances is crucial for long-term success. That’s why working with a trusted strategic advisor like a B2B CFO® can help you plan your quarterly and yearly budgets with precision. By creating strategic contracts with vendors or collecting management team member’s numbers on how much operations for that team cost, for example, you can give your business the time to rethink expenses and profits or make different purchasing decisions that can save you money. It’s important to assess your finances from the year before and adjust any numbers for upcoming changes, like new pricing schedules or new hires.

Remember, budgeting helps you predict future cash flow by aligning cash flows to actual deposits and expenditures. With B2B CFO®, you can rest assured that your business’s finances are in good hands, allowing you to focus on what matters most – growing your business.

Proper Cash Management Tools:
Investing in the right cash flow management software can save your business money in the long run. It can help you manage the cash flows that ebb and flow in your business and see what transactions are sustainable and which are hurting the bottom line. A business advisor can help you to understand which tools connect Income Statement and Balance Sheet information from your accounting software into organized cash flow statements and reports. These solutions can crunch the numbers and help you develop a financial strategy in real-time— as well as forecast various outcomes depending on hypothetical decisions.

Collect A/R & Invoice Early:
Invoice your customers daily or immediately after a product or service is bought and supplied. It’s also important to actively pursue established collection policies with your accounts receivable. Consider establishing a collection process or even a late fee if a customer does not pay their invoice on time. Be sure to coordinate their payments with your payments to suppliers and vendors to further boost cash flow.

Assess Purchasing Policies and Vendor Contracts:
To have a healthy business, you need to invest in inventory that sells but be sure to keep inventory levels at the minimum. You can adjust how much inventory you’re buying, evaluating your customer’s demand to have the proper supply. Overspending on inventory that ultimately won’t sell can decrease your cash flow immensely. In parallel, help your accounts payable out by avoiding late fees or interest charges. Think about which vendors you can have a relationship with and ask for extended terms or contracts where you can pay later, if needed.

Open a Line of Credit:
Your bank can be your best friend if you have the right relationship. A business advisor can act as a liaison to a financial institution and help you to cultivate a mutually beneficial bank relationship.  Business owners may encounter situations where you need extra cash flow to support your operations. This is where opening a line of credit can be beneficial. By having access to a revolving line of credit, you can easily borrow funds when you need them and pay them back as soon as possible. This type of financing can help you manage your cash flow more effectively and take advantage of growth opportunities as they arise.

Hire the Best:
Cash flow management is a crucial aspect of any business, and having the right talent with the right vision is essential for success. Business and financial expertise promotes efficiency within teams and helps identify solutions that benefit the company. However, it can be challenging to navigate the complexities of cash flow management alone. That’s why it’s important to work with a trusted advisor who can provide the right expertise and understanding of your expenses, revenue, and business. By partnering with a reliable advisor, you can ensure that your cash flow is managed effectively, allowing you to focus on growing your business and achieving your goals.

Improving cash flow requires the discipline of looking into the future.

Improving and managing cash flow is a process within a company and not vested with any one single person. That’s why CEOs and Business Owners turn to a B2B CFO® for financial expertise and best practices for managing cash flow. Our Partners can examine your current cash flow trends and using best practices and forecasting tools, we can ensure you have a financially healthy future for your company.

Don’t hesitate to schedule a call today and see how a B2B CFO® can help your business improve cash flow management. Start the conversation today, email NoelBarnes@b2bcfo.com.

Sources:

1 How Cash Flow Forecasting Could Help Save Some Small Businesses From Failure.
Forbes. June 28, 2022