Cash Flow Management Basics & Tips

Your business could be headed for trouble if you don’t have a handle on cash flow.

A study by U.S. Bank found that 82% of the time, poor cash flow management or poor understanding of cash flow contributes to business failure. Don’t be a statistic! We’ve drilled down into cash flow details you need to know. Visit the SmartBiz Small Business Blog for more solid tips about strengthening your bottom line.

Why is it Important to Manage Cash Flow?

Cash flow is king! If you have a handle on your business cash flow, you’re ahead of the game. Here are the reasons you should pay attention to your cash flow to strengthen your business.

  • Stability Cash on hand gives you better buying power and offers protection against loan defaults or foreclosures. Erratic or missed payments can cause your credit score to take a dive.
  • Debt Payment When you borrow money to buy equipment, inventory and other items to run your business, you’re using future cash flow to make those purchases. You’ll need positive future cash flow to pay back that borrowed money. Defaulting on debts ruins your credit rating and can sink your business.
  • Business Growth With strong cash flow (and debt management), you can grow your business. Buying inventory, increasing marketing, purchasing equipment and hiring employees are just a few ways you can use strong and steady cash flow.
  • Securing a Low-Cost Loan In addition to running your business profitably, having sufficient cash flow is important if you’re seeking outside funds. Strong cash flow (along with a healthy credit score) generally means you’ll get better rates and terms.

SBA Loans are known as the gold standard due to low rates and long terms. To qualify for an SBA loan through a SmartBiz Loans bank partner, you’ll need to demonstrate sufficient business and personal cash flow to service all debt payments, demonstrated by 3 years of tax returns and other financial data.

Basics of Cash Flow

Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Cash flow shows how liquid a company is and indicates if the company will remain in the black.

  • Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, pay expenses and provide a buffer against future financial challenges.
  • Negative cash flow indicates that a company’s liquid assets are decreasing.

How to Measure Cash Flow

The cash flow equation is pretty simple: Cash in minus cash out. Our friends at NerdWallet dive deeper into cash flow calculations and includes helpful spreadsheet templates here.

How to Improve Cash Flow

There are solid strategies you can use to increase and stabilize your cash flow. For in-depth information, review How to Increase Small Business Cash Flow.

  • Invoice regularly – This strategy helps you plan how payments will affect cash flow. Your customers and vendors won’t be surprised when a bill is due and you’re more likely to receive payment on time.
  • Increase sales – There are lots of ways you can increase the sale of your goods or services. Check out 10 Tips to Increase Sales for Your Small Business. This article gives actionable strategies you can use to up sales by engaging current customers and attracting new ones.
  • Secure a low cost loan - Although this might sound counter intuitive, a low-cost loan can help with cash flow and provide valuable working capital. Funds can be used for a number of business-building initiatives to boost sales.

Get Started

Know where you stand by creating an easy cash flow statement. There are several free templates online. We like this one from Microsoft. Start filing in the numbers and take steps to improve your situation if necessary.

Do you have sufficient cash flow and a healthy credit score? Consider a low-cost SBA loan if you’re looking for funds to grow your business and save money. Visit SmartBiz Loans today and discover in about 5 minutes if you’re prequalified for a low-rate, long-term SBA loan with no prepayment penalty.