Guide to Small Business Cash Flow Management

The other two financial statements are the income (P&L) statement and the balance sheet. The cash flow statement is the single most valuable tool cash flow management for small business a small business owner has for managing liquidity and solvency over time. What about the cash you need to operate and grow your small business?

Even if you take a minor hit in terms of profit, it can be better to get the cash in hand early. Consider asking for early payment discounts or negotiating terms to 45 or 60 days instead of 15 or 30. When your payment schedule aligns with your business’s needs, it’s easier to maintain a healthy cash flow. In the early days of your business, you may take whatever payment terms your clients or suppliers offer. However, as your business grows, negotiating favorable net terms can help improve cash flow and boost your bottom line.

How Do Businesses Track Cash Flow

Use of our products and services is governed by our Terms of Use and Privacy Policy. “A line of credit preserves cash flow in lean times, helping you not only survive but thrive in downturns. In addition, strong business credit can augment your cash flow over time through lower borrowing costs,” says Brian Martucci, finance editor at MoneyCrashers.com. Consider flexible ways to finance long-term and capital-intensive assets such as equipment and facilities. Furthermore, depending on the market and the stability of your business, you may be better off purchasing real estate and making mortgage payments than being locked into a long-term lease. We’ll cover all three in detail below, including how to prepare a cash flow statement, how to create a cash budget, and how to prepare a cash flow analysis.

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Final thoughts: Schedule time for your finances

This technique allows business owners to predict the outcome of a business decision or potential situation that impacts cash flow and plan accordingly. One way to improve the cash buffer is to create a monthly cash budget that relates to your cash flow projections and anticipates cash needs. By understanding projected cash flows, business owners can set aside the cash they will need for expenses and can manage business activities accordingly. As with cash projections, a cash budget should be created 6-12 months in advance and adjustments made as needed based on actuals.

A general cash flow management best practice is to always aim to increase sales, not expenses. Staying as lean as possible and being careful with credit can help businesses go beyond their break-even point to turn a profit. Cut expenses wherever possible, and use proven marketing techniques to increase sales, such as creating a carefully thought-out marketing sales funnel that catches the attention of your desired audience. Earning satisfied customers and working to keep them happy generally will pay off with referrals and added business.