Strategies For Managing Cash Flow In Small Businesses

May 10, 2023

Cash flow is the lifeline that keeps your business ticking. You need it to stock up on inventory, pay your hard-working employees, and secure that sweet financing.

But all too often, business owners fail to understand the importance of cash flow management. 

According to a study by U.S. Bank, a staggering 82% of failed small businesses can trace their demise back to poor cash flow management. That’s right, a poor understanding of how cash flow works can bring even the most innovative company to its knees.

And if that isn’t enough to make you shake in your boots, consider this – analysts from CB Insights discovered that 29% of startups that sunk into obscurity did so because they simply ran out of cash.

If you don’t want your small business to end up on the wrong side of these daunting statistics, it’s time to get a deeper understanding of cash flow and cash flow management. Here are a few strategies you can employ to keep your business thriving. 

Understanding cash flow:

Creating a steady cash flow can be a significant challenge for small and medium-sized enterprises (SMEs), particularly in their early stages of operation. One of the most crucial factors affecting cash flow is sales as it is the main source of revenue for businesses. Without sales, a business is likely to struggle and fail. Therefore, managing sales efficiently is crucial for maintaining a steady cash flow and ensuring business growth.

One of the most effective ways to achieve this is by adopting digital solutions, such as Sales CRM (Customer Relationship Management) software. A Sales CRM system can help SMEs manage their sales pipeline effectively, automate their sales processes, and reduce the time spent on administrative tasks, and helps maintain a consistent cash flow.

Having said that, it is also critical to employ the strategies required to keep your business thriving. Here are a few strategies.

Prepare for slow periods:

It doesn’t matter how long your business has been going or what industry you’re in— you’ll have times when your sales dip and cash flow slows to a trickle. Unpredictable variables such as the weather, the economy, current events, and even Mercury’s alignment in retrograde (okay, maybe not that one) cause sales to plunge and cash flow to dry.

But instead of wringing your hands and lamenting your fate when these inevitably slow times come, why not plan ahead and weather the storm wisely? Anticipating the ebbs and flows of your business cycle is the ultimate power move. It’s like mapping out a game plan to guide you through hard times and into calmer waters. Take the time to research your industry’s sales patterns and identify opportunities to spread out your cash flow. Furthermore, consider setting aside some of your monthly profits to create an emergency fund that can keep you afloat during particularly rough dry spells.

Use invoice templates to send invoices quickly:

Are you one of the business owners who keep putting off invoicing your customers? Delaying your invoices puts pressure on your cash flow and hinders your ability to collect payments in a timely manner. Don’t wait until the end of the month or week to start invoicing your customers. Do it ASAP! 

A great way to speed up the process is by using invoice templates with payment reminder texts and emails. These days, you can find a plethora of templates online that are specifically designed to cater to small businesses like yours. Whether you’re looking to evaluate your staff’s performance, onboard new hires, whip up a killer project proposal, or send out invoices, you can have the perfect framework for any document your heart desires. If you find yourself sending out multiple invoices every month, having a template ready to go can be a lifesaver. All you’ll need to do is fill in the blanks, adjust the numbers as needed, and hit send. It’s that simple!

Deploy automation tools to streamline cash flow operations:

Automation is the silent hero of the small business world. With the power of automation, you can set payment reminders, log payments, auto-generate invoices, and make all of your accounting tools talk to each other – all of which can make managing your cash flow much more effortless.

Now, small businesses typically don’t have the budget or technical know-how to deploy complicated and code-intensive automation tools. However, you shouldn’t let that prevent you from optimizing your cash-flow management workflows. Fortunately, there are plenty of powerful no-code automation tools like Zapier and Unito ready to turn your cash flow management woes into a thing of the past. All you need to do is define the automation rules that are most relevant to your operations and let your chosen tool handle the rest.

Make use of QR codes to enable easy payments:

If you want to keep your cash flow humming along smoothly, you need to make the payment process as convenient as possible for customers. That’s where these snazzy little black-and-white squares, known as QR codes, come in. Gone are the days when customers had to painstakingly fill out payment forms with the same details over and over again. Thanks to the genius of QR codes, your customers can now just scan a code, and boom – the payment details are sent straight to the processor without any manual input.

And the ultimate cherry on top? QR codes are super simple to set up. Just make sure you select a secure and reliable QR code generator to provide your customers with a safe and smooth payment experience. So don’t let clunky payment processes stall your cash flow – embrace the QR code revolution and sail towards the land of lightning-fast payments.

Finance long-term assets instead of using cash:

While it may be tempting to drain your coffers to purchase shiny new equipment or invest in the latest technology, think twice before emptying your piggy bank. Sure, you might be feeling flush with cash now, but what if a crisis hits or revenue suddenly takes a nosedive? Suddenly, your sunny financial outlook could turn into a stormy sea of debt and cash flow woes. 

Financing lets you split that big-ticket item into smaller, more manageable monthly payments that won’t leave you high and dry during difficult times. Plus, many financiers offer flexible repayment plans and low-interest rates, so you get the asset you need without tapping into your cash reserves.

Keep detailed records:

Cash flow management is more than just tallying up the numbers – it’s also about staying organized, tracking every penny in and out of your business, and having impeccable records of all transactions. Keeping detailed records will guarantee that the numbers always add up and that you’re never left stuck sifting through a disorganized mountain of receipts and invoices, trying to make sense of a convoluted paper trail.

Now, record keeping doesn’t have to be an arduous and time-consuming task. Invest in a reliable cloud filing system to help keep track of all payments, invoices, and other cash flow-related thingamajigs in one place. And if your business deals with a lot of physical paper, have a proper hard copy archiving system in place to ensure that all documents are properly sorted, indexed, and stored away safely. With these systems in place, you’ll never have to worry about losing track of your cash flow records again.

Take Charge of Your Cash Flow

Are you tired of constantly worrying about your small business’s financial health? With the right strategies, you can take control of your cash flow and ensure that your business is always swimming in green and never drowning in the red. The methods discussed in this article provide an excellent starting point, but ultimately it’s up to you to develop and implement a cash flow management plan that works for your business. So, take the reins and steer your small business to success. 

Yoshiro Kichiro

As a demand-gen specialist and copywriter, Yoshiro Kichiro is dedicated to helping businesses grow and thrive. With a deep understanding of persuasive language and data-driven decision-making, Yoshiro has developed successful campaigns for clients across a range of industries. In his free time, he enjoys traveling the world and experiencing new cultures.

This content is part of the HWM Partnership.

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