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How to manage your business’ cash flow
Taxes and Accounting

How to manage your business’ cash flow

13 min read

Your business’ cash flow management tells you just how much is coming in and how much is going out of your business. Making more than you’re spending? That’s great. Cash flow regularly edging into the red? There’s room for improvement.  

Managing your cash flow is key to your business success. Don’t let a cash flow problem put you in a money crunch. All it takes are a few smart moves to keep your company in the black. Here are some helpful ways you can manage your business’ cash flow.

What is cash flow management?

Cash flow describes how capital moves in (cash inflow) and out (cash outflow) of a business. These movements are usually tracked in a cash flow statement. Cash flow can be either positive or negative. 

A positive cash flow is a good thing: it means a business is taking in more cash (through sales and accounts receivable) than it is spending. All companies have expenses, which may include rent, payroll, manufacturing, and other costs. If a business has a positive cash flow, it’s because their income exceeds these expenses. 

A negative cash flow is the opposite: it describes a business with a greater cash outflow than inflow. In other words, the company is spending more than it is taking in. A cash flow management plan can help remedy this situation. 

Cash flow management is the process of tracking these movements. The right management plan can help you address and avoid negative cash flows, which can lead to cash shortages and directly affect your business. 

Examples of cash flow management problems in business

Companies that are just starting out may have cash flow management challenges at first. There are many initial costs to getting a business off the ground, and it might take months or even years for that investment to pay off. 

Businesses undergoing rapid growth can find themselves in the same situation as new businesses: they are making significant investments, but it might take a long time before they see increased revenue. 

Any industry that requires significant upfront capital investment can run into cash flow problems. This includes construction companies, in part because many companies are often only paid once a project is completed—and even those payments don’t always arrive on time. This can lead to several financial issues for the business, including struggles to afford payroll. 

Solving cash flow problems with cash flow management strategies

Stay on top of your finances

Keep your cash flow statements up to date, and check in on them frequently. This might mean reviewing your finances every month or possibly even every week to make sure you know where your money is going. Hopefully you’ll notice small issues before they snowball. 

Being able to anticipate future business trends will help you prepare—so get familiar with business forecasting

You also don’t want to dip unexpectedly into a negative case flow by going over budget. 

Keep better track of your business budget with this helpful guide.

Cut costs

Focus on cutting recurring monthly, quarterly, or annual cash expenses. Can you cut back on utilities, rent, or payroll? Can you lease some of your equipment rather than buying?

For example, if you lease a car used for business, you can deduct the business-related portion of the lease payment. Or do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling it to generate quick cash.

Incentivize early payments

Are your customers’ late payments causing cash flow problems? You can incentivize current and future customers to make their payments earlier than the typical billing cycles.

One option is to offer your customers discounts if they pay early. Instead of waiting to receive payments from your customers, get ahead of it by developing a system that reminds customers to pay on time.

While discounts may impact your overall profit margins due to lost revenue you would have to make up, it may just help cash flow management by incentivizing current and future customers to make their payments earlier than the typical billing cycles.

Try a cash flow loan

If you find yourself wanting additional financing to increase your cash flow, a cash flow loan could be an option. These loans are short-term and often high-interest lines of credit.  

However, you shouldn’t only rely on cash flow loans for expenses like your lease or payroll. Use it as you would cash flow, expenses that will ultimately increase your business revenue, like marketing campaigns or new software. 

But before you apply for a cash flow or small business loan, check out these types of SBA loans to consider what you may qualify for and what works best for your business. 

Implement cash flow management tools

Divvy allows you to set specific budgets for each expense or department as needed, then release only the amount of cash they’re allowed to spend. No longer will you live in the gray area of floating payments and outstanding invoices that keep you up at night, or get hit with expensive reimbursements a month after the fact.

In the end, properly managing your business’ cash flow directs your cash flow to where it’s needed most. You will have enough cash on hand to pay the bills, say “yes” to new projects, or launch a marketing campaign.

Your small business needs tools to navigate changing cash flow and manageable growth. Check out the Divvy SMB Toolbox for handpicked resources and deals to take your business to the next level. 

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