Manage your cash flow in a few simple steps

by Craig Veurink

Rather than wonder, set a realistic goal

Tips

1. Set a realistic goal for when you want to break even. This will help you to focus your efforts and provide a numerical benchmark for projecting your cash flow in the near future

Tips

1. If you have multiple loans, consider consolidating them into one. Making a single payment can lower your monthly expenses and free up cash.

2. Put cash flow before profits. It might seem counterintuitive, but if you aren’t organizing your cash flow, you’ll run into problems that a profitable quarter might not be able to fix

2. If you aren’t using a business credit card, you may not have established any business credit. You’ll need to establish a credit history if you need to go through the process of getting a loan.

3. Secure credit ahead of time. Most small business owners should secure as much credit as possible. This is the best way to be prepared for the unexpected

3. Pay bills with your credit card. It can allow you to keep cash in your accounts for up to 30 or 45 days longer than paying by check or making electronic payments.

4. Consider using a payroll service. Having the professionals take care of collecting payroll taxes saves them an enormous amount of time, helps streamline their cash flow percent perspiration, successfully run ning a small business requires rolling up your sleeves and putting in significant time on more mundane, day-today matters.

4. Rewards add up. Find a credit card that pays rewards and reap the benefits even small payments can help reap.

You can be driven, impassioned and have a great idea to fill a niche or serve customers in new ways, but if you don’t attend to the details of the business, you can create for yourself a heap of problems.

Cash flow can make or break a company. Mismanagement often leads to business failures and cash flow visibility — the ability to track and monitor it in real time — can be a major concern for many small businesses. So what challenges are companies facing? And how can they improve their cash flow? Here’s what I’ve learned.

2. Put cash-flow management before profits

The other way relates to credit. If a lender sees that your company has healthy cash flow, they are more likely to approve a loan or line of credit.

Inflation is affecting cash flow

This might seem counterintuitive, since profits are how you survive. However, if you aren’t organizing your cash flow, you’ll run into problems that a profitable quarter might not be able to fix. Keep things organized and well managed so you can be ready for whatever success comes your way.

Cash flow affects the big picture

Here, we’ll look at one of the most important of these business details: managing cash flow. Especially for early startups, knowing how much cash is coming in and going out, and accurately forecasting sales and expenses, is key to maintaining your company’s health.

5. A trusted banking relationship can be important, as they may be able to find ways to improve how you manage money.

5. Schedule your payments. Don’t go delinquent but do divide your payments into categories such as “must pay,” “important to pay” and “flexible payment terms.” This can help keep sufficient cash on hand.

At its most basic level, cash flow refers to the amount of money coming into and going out of a business. That’s certainly important for day-to-day functions such as making payroll and paying vendors. It’s also important, in two ways, for being able to afford big opportunities.

No matter where you are in your business, keep these things top of mind:

1. Know when you will break even

Every small business owner keeps at the front of their mind the question:

The most obvious is that if you have money on hand, you may be able to afford new equipment, an expansion or other improvements to help your business grow.

3. Secure credit ahead of time

Inflation is a big concern for small businesses right now, which is no surprise. When goods cost more, that impacts the bottom line. As a result, some businesses are overextending themselves. Some are running cash flow too low and becoming too reliant on loans. And with high interest rates, some companies are trying to pay loans off sooner, which is draining their cash flow. The COVID-19 pandemic is still affecting some companies, as well. They’re experiencing delays receiving international payments.

Three relatively easy financial moves can improve cash flow

Knowing how to best manage incoming and outgoing money is es - sential for any small business. Many business owners have extensive expertise in their area of business, but not necessarily in their business finances. That’s why having a trusted banker makes sense. They can take a close look at your business and uncover specific ways to improve how you manage money.

Too often, small business owners wait until they need it to secure credit. This can cause a lot of unnecessary stress, or worse. Talk to experienced business owners in your area and industry ahead of time to know how much revenue you’ll need up front. Take a realistic look at the situation and plan. You might have sufficient cash reserves or a rich uncle who is only a call away, but most small business owners should secure as much credit as possible. This is the best way to be prepared for the unexpected.

While there are certainly more than three ways to improve cash flow, I want to focus on what I see from a banker’s perspective, not on business goals like increasing sales and strengthening profit margins. Here are three moves that can often help.

1. Consolidate loans. If you have loans, consolidating them into a single payment can lower your monthly expenses and free up cash flow.

2. Get a line of credit. There’s a good chance you want to grow your business and that may require getting a loan or line of credit in the future. Even if you don’t anticipate needing it anytime soon, having a revolving line of credit can give you peace of mind and a cushion in case cash flow gets tight.

If you aren’t using a business credit card, you may not have established any business credit, which is something you’ll need in the loan approval process. Look for a credit card that reports to the business credit bureaus. This protects business owners by separating their personal finances from their business finances.

3. Pay with credit. If you’re paying with check, debit or ACH, you’re missing an opportunity to keep cash in your account longer. Using a credit card delays payment for 30 to 45 days, and unlike a line of credit, it doesn’t require you to pay interest if you meet the monthly due date.

With every purchase you make, you can earn rewards—money you could use to keep up with rising shipping costs, payroll or new equipment you need to grow your company. Yet while most businesses have a credit card on hand for large purchases, many don’t use it for everyday purchases. Why not earn rewards on those small expenses you pay every month?

As you’re thinking about other purchases that you could switch over to credit card payments, consider utilities such as electricity, phone, internet and water. Software and other subscriptions are also easy payments to transition. Check with your vendors. You might be surprised how many are willing to accept credit card payments.

One example: A company wanted to find a way to treat their employees with a holiday party. We scrubbed their vendor list to determine which vendors would accept credit card payments and helped them switch to credit card payments for everyday expenses. The company discovered it could fund the entire party with the rewards they had earned.

With cash flow having such a significant impact on business, it’s worth prioritizing these steps. With more purchasing power, companies have the strength to weather challenging times — and grow in strategic ways.