Cashflow and you: How to improve and protect your small business

Of all the challenges you’ll face as a business owner in America, managing cashflow is one of the trickiest. It’s vital you learn to manage your income, capital and expenses in a way that allows your business to operate effectively and fluidly.

In short, cashflow is defined simply by the flow of money in and out of your business at any given time. There are many ways this can be disrupted, from difficulties chasing payments to outside factors in your industry that can threaten your sales pipeline.

Common cashflow mistakes

It’s easy to find yourself in a difficult spot where cashflow is concerned. Here are some common mistakes made by business owners across America.

No savings: Having a cash reserve is vital in reducing the risk your business is exposed to. Just as is true in real life, a safety net of several months of operating costs is critical. That exact figure will vary depending on your services, products, expenses, and more.

No emergency plan: Failure to plan properly for disruptions to your cashflow is a serious error. Business continuity planning isn’t something only done by large companies – it matters for small businesses and startups too.

Expanding too fast: Growth is a double-edged sword. It’s easy to make the mistake of shooting for the stars too quickly, leaving you with too many financial obligations and not enough resources to meet them.

Tip time: How to handle it better

So, how can a business learn to improve its handling of cashflow? We’ve put together a set of tips for you to browse through and benefit from.

Improve your invoicing: There are many different invoicing systems and services you can pay to use, and they all have statistics that show the same thing: a solid system with in-built reminders improves the likelihood you’ll be paid on time.

This is worth investing in. Most subscription services are very minor in cost and can help to present your business in a professional light. Consider a service that lets you brand your invoices and always ensure you’ve got favorable payment terms in place – and direct debits, if you can arrange it.

Pay closer to due dates: As long as you’re careful to avoid late payment penalties, it’s common business sense to pay bills and any other financial obligation right at the due date. This means you have money in your account for longer, helping to protect your business more from any unexpected disruptions to its cashflow.

With digital banking making payments faster than ever before, there’s no excuse for this one. Even if you don’t foresee any issues with cashflow, be mindful that the unexpected can happen at any time. As long as it doesn’t threaten your company’s reputation or the relationship you have with a client or supplier, it’s better to pay towards the end date of your arrangements.

Spread your expenses out: Yes, it’s easy to pile everything up on the first of each month – we all do it in our personal lives. When you’re running a business though, it’s a different matter entirely. Having all your financial obligations due to be paid at the start or end of each month is a common mistake that’s easily rectified.

Spreading your expenses out over the month will smooth your cashflow, making it easier for you to handle costs. Better yet, it’ll significantly mitigate the risk of serious disruption to your finances, helping to ensure your company stays afloat and operating well.

Prepare funding options: It’s helpful to have already researched what options you have for funding for small businesses. If you know you can request a business loan or line of credit on short notice, you have a backup for when the worst happens.

We hope that helps!

Managing cashflow is something every business owner will learn to do better over time. It’s great to do your best as soon as you can, helping you to avoid common sources of risk.

We hope today’s article was informative and useful. Take care and good luck for the months ahead!

This article does not necessarily reflect the opinions of the editors or the management of EconoTimes