Master Cash Flow Management using these Proven Strategies

4 days ago
5 min read

Cash flow management refers to the money that flows in and out of your business on an everyday basis. Essentially, how much cash you have on hand to cover your expenses at any given time.

Seeing an accurate picture of this flow—weekly, monthly, and quarterly—is the best way to ensure that you stay in business and avoid unexpected costs. For example, you could have an incredible month in sales, and still find yourself struggling to pay the bills if you’re not tracking cash flow carefully.

If incoming money from sales is not lining up with outgoing expenses for payroll, inventory, utilities, and other expenses, you’ll find yourself scrambling to cover it all, even if your revenue is off the charts!

Tracking and managing cash flow is how you will guarantee that you’ll have money when you need it and that you’ll be able to grow without going broke.

WHAT IS THE DIFFERENCE BETWEEN ACCOUNTING AND CASH FLOW MANAGEMENT?

In a nutshell, accounting is tracking a larger picture of your business: the balance of profit and loss over a period of time. Accounting income tracks total revenue, even if you have not yet received payment from customers. It shows the whole picture, expressed as one number in profit or loss.

A cash flow statement is a more detailed, in-depth picture that lets you see and plan day-to-day inflows and outflows. If you’ve closed sales but haven’t yet received payment, this is where you’ll see it reflected. It’s like the balanced checkbook of your business—how much (liquid) cash you have available at any time to pay your bills and obligations. Also read - Cash Flow VS Profits - whats the difference

It's time to learn how to manage your cash flow like a pro!

Download your free Cash Flow guide to get started! - download here

This guide includes regular tasks to build into your workflow to ensure you don't run out of cash, tips on how to create and keep a budget, and the best apps to use to track expenses seamlessly. With this guide, you'll feel confident in managing your cash flow and might even be checking your bank balance daily!

WHY IS CASH FLOW MANAGEMENT IMPORTANT?

Detailing your cash flow helps you stay in business. Mastering cash flow will have you making smart decisions and weathering for the future. Whether that means growth or riding out a recession, you’ll be prepared.

How to Become a Master of Cash Flow Management (And Why You Want to Be)

Use these five strategies to master the basics of small business accounting:

Track your cash flow
Analyze and plan for the future
Bring in more cash
Clean up leaks in outgoing cash
Invest in the future

1. TRACK YOUR CASH FLOW

There are several strategies to prepare cash flow statements, and you can use any method that works for you and your business, from a simple notebook to an Excel spreadsheet. There are also templates available online.

It doesn’t have to be fancy, just functional! Determine a time period for continually tracking, be it weekly, monthly, or quarterly.

Track the following:

What is my incoming (positive) cash flow? This could be:

Cash received from sales/services rendered
Investment dividends or interest
Financing

What is my outgoing (negative) cash flow? This could be:

Payroll
Inventory
Overhead business costs such as rent and utilities
Interest
Taxes
Computer expenses and subscriptions
Advertising
Fuel
Telephone and printing costs

Over time, you’ll see patterns of cash flow and have the foresight and knowledge to make smart decisions regarding your business.

Also Read: The Ultimate Guide for Entrepreneurs to Conquer Cash Flow Challenges

2. ANALYZE AND PLAN FOR THE FUTURE

Now that you have a feel for the balance of incoming and outgoing cash flow, you can analyze what needs improvement and plan for the future. Keep in mind, it’s less about cutting corners and more about making sure your business is spending intelligently.

Some key things to think about when forecasting:

Plan for slow seasons well in advance.

Analyze areas where you might be overspending and plan to cut them in the future.

Consider any upcoming investments you want to make to grow the business (assets, employees, real estate) and how that will affect your future cash flow. All of these things should be planned for in advance without jeopardizing the stability of your business.
Consider renting expensive equipment whenever possible, instead of buying it. This frees up your money and allows you to pivot quickly when needed.

3. BRING IN MORE CASH

One way to ensure you have more cash on hand is, of course, to bring more in!

Are your products or services making enough profit? Do you need to raise your prices?

Alternatively, are there products or services that are more hassle than profit? Kick ‘em to the curb.

Negotiate a more favorable payment plan with your suppliers.

Give less of a payment runway to clients. For example, if you are billing with net 30, tighten up the timeline to “payment due upon receipt”.

Require a deposit up front for large projects.

Expand your offerings.

Increase your client base.

4. CLEAN UP LEAKS IN OUTGOING CASH

The second best way to keep cash on hand is to look at what’s going out. Comb through these expenses and cut any unnecessary expenditures. These may be small now, but the difference over time will be huge.

Are you overpaying interest for a loan or credit card? Call and renegotiate your terms.

Are there tax breaks you might be missing? Get a second opinion every few years to make sure your business is not overpaying.

Are you giving your clients too much time to pay? Keep on top of invoices and make payment terms in your favor.

Have any subscriptions you don’t use? Cancel them!

5. INVEST IN THE FUTURE

Now that you have a larger pile of cash on hand, the next step is to let it grow.

Invest your savings: Just as you might have a personal emergency fund, your business should have one too. Whether you keep it in a high-interest savings account or dividend-yielding stocks or funds, let it grow and work for you. There will always be rough economic periods, but you’ll be ready for anything that comes.

Invest in people: Hiring the right financial coach, accountant, tax professional, or CFO can help you manage, grow, and keep your profits, so you can focus on your business. There are many details and nuances to consider, and myriad ways to look at your financial picture. A dedicated finance team is a key investment in your company’s future.

At HM Accounting, we can help you with cash flow projections and forecasts and analyze your business finances. We can also make recommendations based on your long-term goals. To see how we can help you and your business reach out to us on any of the following channels: