3 tips for managing a small business’s cash flow
Cash flow is essential to the success of a small business. Even more than profitability, cash is important because it allows a business to buy inventory, keep the lights on, and pay its employees. As small businesses continue to try to recover from the pandemic, focusing on cash flow can help a small business survive and thrive.
Collect payments quickly
One of the easiest ways to improve cash flow is to get customers to pay as early as possible by offering them discounts. You may want to test the amount that is worth sacrificing to ensure your bill payments are processed as quickly as possible. Another technique for collecting payments quickly is to require deposits from your customers before the product is delivered. This can help collect at least part of the payment up front rather than waiting until later in the month.
Accept electronic payments
Advances in technology give your customers many ways to transact quickly and efficiently with your business. An example is electronic invoicing, which allows you to personalize invoices and set up automatic payment reminders for customers. Electronic banking services like Zelle for Small Businesses make it easy to send and receive payments quickly. In addition to helping your business get paid quickly, you can use Zelle to easily pay other businesses or individuals.
Anticipate cash flow shortages
It is important to plan for the unexpected. Typically, cash flow will vary and unforeseen expenses will arise even for established businesses. Keeping a rainy day fund with three to six months of basic operating expenses in a reserve can prepare you for slack periods and emergencies. Another option is to use a business credit card or business line of credit to pay for everyday expenses and help close cash flow gaps. Make sure to monitor your spending with online banking and monthly statements.
Reaching your highest potential as a business owner and being able to serve your customers effectively depends on maintaining a positive cash flow. Following the tips above can help keep your business financially strong and position your business for success.
–Brandon Meredith is the Small Business Leader for Wells Fargo in Boise, Idaho.
To sign up for free CityBusiness updates, click here.