Understanding and Managing Cash Flow for Small Businesses

Cash flow is the heartbeat of a small business and it’s crucial that you, as a business owner, manage this essential element effectively. Proper cash flow management can help you track expenses and revenue, identify potential problems early, and help guide your decision-making process. Yet cash flow can potentially be one of the biggest challenges you face. A U.S. Bank study found that 82% of recent small business failures reported that cash flow factored into their failure. So the question remains, how do you effectively manage cash flow for your company? Watkins & Co CPA experts are here to weigh in on the best cash flow management strategies.

Cash Flow Tips For Small Business Owners

We have some tried-and-true key tips on how to improve company cash flow management.

Understand Your Cash Flow 

Knowing how your cash flow cycles work within your business is an important start of proper management. Start tracking the amount of time it takes to purchase and convert raw materials into products, the sales of products, and the payment collection. The entire time it takes from start to finish is your cash flow cycle. This enables you to predict where your cash will be going in the near future as well as where your cash is at any given time. 

Review P & L Statements Regularly (Monitor Your Cash Flow)

Use accounting software to automate and streamline cash flow management. This will enable you to more easily monitor your cash flow and make adjustments as necessary. A good method of following your cash flow cycle is consistently keeping and reviewing accurate profit and loss statements. This will help you identify where in the process your cash flow is facing glitches and what can be improved.

Invoice Promptly

cash flow tips for small business owners

Chasing down payment can be a time-consuming and exhausting task, not to mention that late payments can contribute to cash flow issues considerably. Consider ways to expedite payment and make the process as easy as possible for customers, such as electronic invoicing and online payment. If necessary, offer incentives for customers to pay early or on time.

Control Costs: Negotiate with Vendors and Customers

If your business is experiencing cash flow issues, consider cutting costs, and controlling expenses. Depending on your industry, you may be able to negotiate with vendors and/or customers on lower pricing and/or payment terms. Based on your P & L statement reviews, you will be able to see hindrances in your cash flow cycle. Use this information to negotiate different payment times from customers and work with vendors to reduce prices or adjust the pay period to them to fix problems in your cash flow.

Optimize Inventory Management 

Turning inventory quickly allows you to reduce excess stock and free up cash. Ensuring that your inventory is moving also ensures that profit is coming in. Consider marketing methods or contract terms that may help increase inventory turnover. 

Cash Flow Management for Small Businesses Jackson, MS

When you’re looking to streamline cash flow management and need a reliable and knowledgeable partner for your small business in Mississippi, Watkins & Co is here for you! We offer cash flow analysis and forecasting services to help you identify potential cash flow problems early on, set realistic targets, and make informed decisions. Our team of experienced financial professionals can help you reduce your expenses, improve your profitability, and ensure that there is always enough cash to keep your business operations running smoothly.