Cash flow.pngThe U.S. economy is on a slow but steady trajectory to recovery. Companies of all sizes are gearing up for growth as increases in spending and other economic indicators underscore a renewed optimism among consumers. Among small businesses, confidence is at a three year high, according to data from Intuit Inc., The National Federation of Independent Business and others.


So as a small business owner are you still waiting to feel better?  While the Great Recession may be fading, its legacy lingers in shifting supply chain payment cycles (vendors seeking to expedite and buyers seeking to extend) and more stringent credit requirements. In this new reality, effective cash flow management is one of the most important key competencies you need to build your own recovery and grow and thrive.


Here are four critical strategies and recommendations to avoid financial pitfalls, mitigate risk and seize opportunities.


  • Understand Cash vs. Working Capital – Though these terms are occasionally used interchangeably, understanding the distinction is vital.  One lesson learned from the economic crisis is that the predictability of cash reserves can be an antidote to the unpredictability of adverse events that impact your working capital (receivables and payables). Business is inherently cyclical – customers leave, sales slow, new competitors surface forcing unexpected investments. In such situations, an infusion of cash literally becomes the lifeblood of the business, stabilizing and sustaining operations while leadership develops a long-term plan for addressing challenges.  Understanding the balance of cash and working capital in your business will help you feel in control.

  • Fail to Plan, Plan to Fail – In an era when there is a premium on minimizing or eliminating any foreseeable risk, even the smallest businesses can no longer afford to roll the dice with casual “back of the envelope” calculations.  Today, effective cash management requires a disciplined, systemic and realistic approach to projecting the amounts and timing of cash inflows and outflows for both the short-term (weekly, monthly depending on company size) and the long-term (annual, 3-5 years).  This enables you to forecast when, where and how your cash needs may arise and ensures you have the capital strategy in place to meet those needs.


Preparing a cash flow statement that accounts for the sources and uses of cash can be helpful for developing accurate projections. Typically, the statement would include operating cash flow (income generated from sales of products and services); investing cash flow (income derived from non-operating activities, such as investments in facilities, equipment or other fixed assets); and financing cash flow, accruing to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock and the payment of dividend are examples of activities that would be included in this section.Cashflow Pull Quote.png


  • See the Forest for The Trees – A company’s cash position is not siloed. On the contrary, it is inextricably tied to business operations. Regularly assessing production schedules, worker assignments, overtime, outsourcing, supplier choices and delivery dates against cash availability enables business owners to make appropriate adjustments and potentially preclude a cash crisis.


Moreover, identifying solutions that provide real-time centralized visibility into both your payables and receivables can significantly enhance control over spending and expenses.


  • New Normal Means New Solutions – The digital age is now the primary driver of cash flow management for small businesses, as banks and businesses increasingly move towards phasing out paper checks in favor of electronic alternatives for payment of suppliers, taxes, employees, etc.  Electronic payments can lower expenses by dramatically reducing the labor, stationary and postage costs associated with checks. They can also be equally valuable for expediting receivables collection. Additionally, more banks are offering competitive full service small business merchant services and online remote deposit products that provide all the capabilities that until recently were only offered to larger corporations. 


Feeling insecure about cash management is often not the result of a lack of sophistication or prohibitive costs, but rather a function of inadequate time and resources to focus on it.


The good news is that today, small businesses have access to scalable versions of many of the same tools and capabilities as larger enterprises to manage cash flow, develop capital strategies and speed collections. The first step to taking proactive control over your cash management strategy is to initiate a dialogue with your financial services partner about the options and support that may be available to help alleviate pain points and drive your business forward.

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