Everyone knows that businesses need to make money. Many companies, however, operate based on debt. This doesn’t mean you cannot be a success; you just need to start making a positive cash flow ASAP. 

The good news is that plenty of great tips are available to help you with your cash flow management issues.

Understanding cash flow

Cash flow is one of the most essential concepts worth wrapping your brain around as a small business owner. 

Cash flow means more for your business than revenue. Managing your cash flow, however, means much more. It can include anything from consolidating your business phone systems into a single solution to save on costs, all the way to forecasting your cash flow for the next year. 

The goal of cash flow management is to make sure you bring in more cash than goes out. You’ll also want to workshop options if your next payment period goes out after your next bill. 

With cash flow management, you need to factor in your operational costs, such as the price of: 

• Inventory 
• Employees
• Asset maintenance
• Utility bills and rent
• Insurance costs
• Software subscriptions
• Tax payments
• And more

You never want a bill to come up unexpectedly. You must constantly be prepared to pay them, strategize ways to delay the bill, or set up a new payment plan ahead of schedule. If you mismanage your cash flow, you may end up as one of the 82% of small businesses that failed because they couldn’t keep up with payments. 

How to use cash flow for financial growth 

Cash flow is one of the underlying factors that can help any small business achieve financial growth. 

Give yourself leverage 

You can run a successful business and still be short for brief periods. So long as you’ve maintained good standing and have a long ledger of positive cash flow management, you can use that to give yourself leverage. You could be one of the 22.4% of small businesses that apply for a bank loan to cover cash flow, or you can negotiate with your suppliers if you need to make late payments. 

Identify potential cash gaps 

Predicting future periods when you’ll have many more bills going out than money coming in can help you avoid cash shortages. You might have to repay the rest of a loan in a month, for example, and to accommodate that, you hold off on buying your next round of inventory. 

Understand when you should grow 

Expanding is an essential part of financial growth. The good news is that you can look at your cash flow records to see a good time to start growing. If you bring in a very healthy cash flow or have sufficient cash reserves, your business is doing well enough to reinvest those profits into expanding. 

Improve budgeting

Creating a budget without looking at your cash flow statements is like making a wish. It’s nice, but it likely won’t stand up to reality. That’s why you need to use cash flow management to track cash inflows and cash outflows so you can use real data to put together your budget predictions.  

Top eight effective cash flow management strategies 

Managing cash flow is how you keep your business afloat. Using these strategies, however, is how you can use cash flow management to help your business start to turn a profit. If you want business financial growth, then you’ll want to start with these top eight strategies: 

1.) Automate Cash Flow Monitoring

To manage your cash flow, you first need to start tracking it. This is particularly true since “cash flow” today typically doesn’t mean you’re dealing with cash. Instead, it just refers to the costs vs income of your business. 

The last thing you want on your plate regarding business operations is tracking down all your business expenses on your own. That’s why you’ll want to connect PayPal to QuickBooks. This way, you can automatically start tracking everything from the sale price to what portion of that goes towards your taxes, and so on. 

Software excels at automatically tracking and sorting information; you just need to use the right tools for your niche and industry. 

 2.) Forecast your cash flow 

The next big strategy is to create a cash flow forecast. Cash flow forecasting simply means going through and totaling up all those future outgoing costs in advance. With cash flow forecasting, you should never be surprised when a bill comes in because you lost track of time. 

Forecasting can also help you spot potential cash flow issues (for example, two bills are due on the same day, but that day is during your low season). Then, you can either negotiate to pay one supplier at a different time or look into getting a short-term loan to cover the period. 

There is no hard or fast rule on how to design a cash flow forecast, but this example is an excellent place to get started if you’re struggling: 

3.) Switch to cheaper systems

If your operational expenses keep eating up your budget every time you use cash flow forecasting, then stop. It’s time to take a step back and try to find systems that better fit your budget. 

If you have many clients calling in, for example, and your phone bill hurts to look at every time, swap it out. You can upgrade your phone system to VoIP, no problem. There are so many benefits of VoIP for business, but for you, the fact that it’s cheaper than regular phone lines and gives you all the professional tools your company needs while paying less is critical. 

4.) Use AI strategically to reduce running costs 

You may wonder how to use AI for e-commerce. While many flashy options exist today, you want to be smart about your choice. 

Choose data, supply chain, and inventory management tools that help you automate processes. These tools also typically have built-in analytics tools, allowing you to make more informed decisions about your business growth. 

The reason why you’ll want to start your focus with automated process tools is simple – you don’t have enough data to make full use of more complex AI tools just yet. Start by fully optimizing automated processes, grow your business, and look into further investing in AI. 

5.) Lease equipment instead of buying it

Buying equipment does help you save money over the long term, but you don’t know if you’ll be there just yet. That’s why it’s better to lease equipment than make equipment purchases. Leasing equipment also lets you only hire it for a short time. 

A landscaper, for example, can rent a digger for a single day and then give it back rather than needing to store idle equipment around (and pay for the privilege). However, if you rent out equipment constantly, look into purchasing instead. You can even save money by shopping for second-hand equipment instead.

6.) Be timely with payments and invoices

Missed payments incur fees, and not chasing up invoices means delays in payments. You need to be on top of both making payments and sending out invoices. The good news is that there are so many ways to do this easily. 

For example, you can set up a standing order with your bank to make sure the money is paid on the correct date. You can even use invoicing software to send out invoices once the job is done. Electronic invoicing tools typically also let you track who has paid and who hasn’t so that you can send out reminders automatically. 

7.) Negotiate with suppliers

If you ever need to negotiate with suppliers before your payments are due. If you pay on time, you’ll have a lot of negotiating power every time. You can negotiate better terms (resulting in cash savings) or ask for a payment delay or an alternative financing plan if you’re struggling. 

If your suppliers aren’t playing ball (at least not when it comes to renegotiating your terms), always try to shop around. Know your options so you can go with the best suppliers for value. This way, you will continuously streamline base costs, making it easier to turn a profit. 

8.) Build your emergency fund

No matter what, you want to establish financial stability. This means you will need to put aside money in an emergency fund. 

For the best results, put it in a high-savings account that penalizes you if you take the money out too often or too early since this incentivizes you to build a healthy emergency fund that may just save your business one day. 

Key takeaways

Implementing these cash flow strategies will help you lower your operating costs and make it easier to have a healthy cash flow. These tips can also help you when times are tough and you need a loan or to negotiate with suppliers. Either way, so long as you’re prepared, you have options to keep your business afloat and even thrive.