Improving Cash Flow Management_Sized.jpgby Karen Harrison


Eighty-two percent of businesses fail due to poor cash-flow management, according to a study by Jessie Hagen of US Bank, cited on the SCORE website.


The most common cash flow contributors for small business failure include unexpected growth, insufficient capital, poor inventory management, lack of available credit to manage cash flow, and commingling of business and personal funds, according to the National Association of Women Business Owners (NAWBO).


Planning is the key to successful cash flow management.  Here are five valuable practices for small business owners to assist with establishing a healthy cash flow.


1. Get paid ASAP.


Leveraging electronic payment options is an excellent strategy to get paid faster as they are processed more quickly than standard transactions.  There are a variety of options for online payments: same-day funding with merchant services, ACH payments, wire transfers, electronic check scanner for larger checks, or mobile check deposits for smaller items – all easily managed from your office or online.  If you can be paid in advance or at point-of-sale, do so; otherwise, invoice often, secure deposits, provide incentives for early payments, and tightly manage receivables.


2. Never be short on cash.


Establishing a line of credit to cover cash flow gaps or shortfalls, caused from timing differences between payables and receivables, seasonality, or short-term cash needs (less than one year). There is no cash advance fee when leveraging a line of credit – think of it as ready cash to meet immediate cash needs.


3. Delay cash outflows.


Try using a small business line of credit as a cash flow tool, providing a typically lower-cost alternative to other forms of credit. Also, a small business owner can set up extended payment terms with vendors/suppliers, and leverage electronic payments to control cash disbursements.  If you can’t delay payments, attempt to negotiate payment discounts for early payments to create a positive margin.  For day-to-day expenses such as office supplies or gas, a small business credit card is a great solution because it provides a grace period on interest up to 30-45 days and may even pay you cash or rewards in the process.  Look for a small business card without an annual fee.


4. Hold onto your cash.


Leverage today’s low-cost, long-term financing to purchase and/or refinance assets, such as commercial vehicles, equipment, and commercial real estate, as this could help your business sustain needed liquidity.  Securing a long-term low rate today could mean rate protection for the future, which can help you secure low monthly payments for improved cash flow and budgeting.


5. Pay yourself, not a landlord.


Buying instead of leasing owner-occupied commercial real estate can help stabilize payments, protect against rent increases, build equity, and create an asset that can be sold, borrowed against, or leased to third parties.  If you work from home, consider a residential home mortgage loan.  Many small business owners are surprised to learn that purchasing can often be more affordable than renting or leasing.


Simple strategies can create big wins.


By maintaining a mindset that cash is king, and exercising strategies to maximize cash flow, small business owners are better prepared to manage growth, change, and unexpected surprises, as well as take advantage of new opportunities as they arise.  Meeting with a small business banker can help you evaluate your business priorities, including your cash flow needs, and identify the right financial tools to help your business succeed.




More than three million entrepreneurs turn to Bank of America Business Advantage to provide a competitive advantage to help their businesses grow. That’s because the bank’s high-tech, high-touch approach provides industry-leading guidance, connections, tools and solutions, along with the dedicated support to address small business owners’ unique needs to bank how, where and when they want.


Bank of America, N.A. provides articles for your review and discussion purposes only. This is not a commitment to lend. You should consult with your tax advisor for your actual tax benefits.

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