Effective cash flow management tips for small businesses
Whether you’re a new small business owner or a seasoned pro, you can brush up on your cash flow management practices with these tips.
1. Make good use of accounting software
Many of today’s accounting software, such as Quickbooks, have powerful yet intuitive user interfaces, so you don’t need to be an accountant to use it. Software can track all your accounts, transactions, balances, generate invoices and streamline taxes.
Also, accounting software doesn’t have to be expensive. For example, you can use free, open-source accounting software like Wave or GnuCash.
2. Keep your cash working
Make your cash work for you by opening an interest-bearing business bank account that serves as your central cash reservoir.
But don’t make the common mistake of locking it into a 30-day or 60-day CD bond. Keep it in an immediate-access account in case of a cash flow forecasting miscalculation or unexpected event.
3. Get paid on time
One of the best ways to improve your business’s cash flow is to train your customers to pay on time. Online invoicing software like Due or Invoice Ninja sends automatic payment reminders. Also, including one-click payment options makes it easy for customers to pay you.
Also, don’t forget to invoice promptly. You can set up most invoicing software to generate and automatically send an invoice to customers.
4. Make your payments as late as possible
The later you send payment, the longer your cash is available and earning interest. With digital banking, you can set up a direct debit to pay recurring expenses on the final day they are due, but before you get hit with a late fee.
On the other hand, you might negotiate early payment discounts with suppliers if you find yourself with a positive cash flow.
5. Spread out your expenses
Making all of your payments on the same day might be easy to remember, but it’s terrible for cash management.
Use digital banking to set up automatic payments and use accounting software to track cash flow across each month.
Check for monthly payment options for fixed costs like general liability insurance. For instance, we offer this option because we know small businesses need it; most of our customers choose to pay monthly instead of in a lump sum.
6. Be smart with your payroll
Software like Gusto and Square Payroll is important in your business financial management. When you have a payroll account, transfer the funds just before paying salaries so that your cash stays in your main interest-earning account for as long as possible.
It’s also better to pay your employees by direct debit to save money and time on writing checks.
Figure out what payroll cycle structure works better for you. A bi-monthly cycle (paying twice a month roughly 15 days apart) means you have 24 pay cycles each year instead of 26, saving you the costs of two extra pay cycles. However, a bi-weekly cycle (usually the same day every other week) allows you to pay smaller paychecks each pay period.
7. Reduce your cash outflow
Every dollar helps, so look for ways to reduce your expenses. For instance:
- Fix expensive capital equipment instead of replacing it
- Conduct regular maintenance to save you money on replacement costs
- Look for used or reconditioned equipment in good condition
- Put off upgrading your products until you have to
- Choose high-quality open-source business software, which is usually free or asks for a small donation
- Build relationships with vendors and discuss buying options, payment terms or discounts
- Look into bartering your products for supplies, which may seem old-fashioned but is still used for suppliers who are also customers
8. Manage your inventory better
Take advantage of smart tools and apps for inventory management to only have what your business needs to operate smoothly. Your inventory ties up cash in tangible objects, so turn it over frequently to keep cash flowing.
For instance, track your inventory levels in real time either manually or through a point-of-sale system. You can often set up reorder alerts to notify you when something is running low. Even better, some tools can base your inventory and ordering on sales amounts and frequency to help you make smarter purchasing decisions.
9. Always have a backup plan
At some point, you’ll need emergency cash for your business. Preparing for unexpected expenses is essential. Besides building up a cash reserve, you’ll also want to keep accurate bookkeeping records, so you know your liquid assets and what costs you can shift.
Stay on top of your business credit score so you can get good terms on a business loan or line of credit, even if it’s taken at the last minute. Using a business credit card will boost your business credit standing and give you a source of emergency funding.
Finally, purchasing business insurance helps protect your business from accidents or mistakes resulting in financial losses. With insurance covering some costs such as medical expenses, property damage, legal fees and more, you won’t have to pay out of pocket yourself.
How NEXT helps small businesses thrive
Managing your cash flow is critical to ensuring you can focus on your business rather than its accounting. Take small steps to make sure your business is ready for unexpected ups and downs that can be difficult to estimate.
NEXT Insurance also helps entrepreneurs prepare for the unexpected. We combine the best of insurance agents and brokers and use technology to give our customers affordable, tailored policies.
You can apply for insurance online, get a quote, see policy options and purchase coverage — all in less than 10 minutes. We’re 100% online, so you can always access and management account, even if you need a certificate of insurance at 5:00 a.m on a Sunday.
If you have questions, our licensed, U.S.-based insurance professionals are available to help you.
Get started with a quote now.
