There is a lot that goes into starting a small business. You need to establish efficient workflows, manage payroll, control inventory, and more. However, at the end of the day, your main goal is likely going to be to generate revenue in an efficient way.
But, it can seem difficult to manage your incoming profit and outgoing expenses when you first start off. However, there are a few things you can do to establish a rock solid cash flow management system and begin optimizing your spending.
1. Establish a Business Line of Credit
When you first start your business, you may have received funding from an outside source or provided that funding yourself. However, you’ll likely need more than just the initial start up costs to continue to run a successful business.
The best way to do this is to establish a business line of credit with a bank or financial institution. A business line of credit allows you to withdraw funding on an as-needed basis, instead of getting a small business loan where funding is disbursed all at once. With this type of funding, you can easily manage incoming funding without needing to make a large loan payment on a consistent monthly basis.
2. Stagger Outgoing Payment Dates
As with any business, you will have both incoming and outgoing invoices. Whether you are paying for a brick and mortar location, ordering inventory, or funding payroll, you’ll have consistent payments you need to make month to month in order to keep your business running. However, you also want to make sure all of these payments are not coming out at once.
In order to establish a good cash flow system, you need to stagger your outgoing payment dates. This will ensure large amounts of money are not being taken from your business account at the same time. After all, you don’t want to run into an emergency situation without the funding to fix it.
3. Adjust Your Payroll Cycle As Necessary
Payroll is likely going to be one of the largest expenses you have as a business owner. In order to effectively manage your cash flow, you should adjust your payroll cycle as necessary. It should align with your revenue stream as best as possible. Analyze your spending and payment schedule to see exactly what the best payroll cycle for your business is.
Commonly, businesses operate on a weekly or bi-weekly payroll cycle. You can also choose to make payments monthly or on specific days (like the 1st and 15th of the month). However, some states have frequency requirements for payroll. In order to discover restrictions in your state, you should contact the Department of Labor.
4. Get Invoices Paid Faster
One of the most frustrating things business owners face is waiting on unpaid invoices from customers. With revenue being held up, it can be difficult to make quick purchasing decisions and start to grow your business.
Luckily, there are some companies that offer invoice factoring in order to expedite the payment process and allow your funding to hit your business account faster. As some vendors can take 30-90 days to fulfill payment, invoice factoring companies will take over any unpaid invoices you have and send you funds within a few business days.
Generally, they take a small fee between 1%-5% of the total invoice cost. This is a great, low cost way to ensure you are getting paid faster. It also allows you to quickly dedicate your budget for business growth, payroll, and any other expenses you may have.
5. Improve Profit Forecasts
A great way to manage your cash flow better as a small business owner is to improve your profit forecasts for the future. Using data from previous months and competitor data, you may be able to improve your profit forecasts to create a better budget.
Many industries have busier periods and slow periods. With that being said, it is important for a business owner to understand the ebbs and flows of their specific industry. During slower periods, how can you cut down costs? How can you support your business needs during busier months? Your previous financial data can help you identify trends and allocate your budget more efficiently.
Final Thoughts on Managing Cash Flow as a Small Business Owner
When it comes to owning a business, you’ll need to be profit driven in order to be successful. So, learning how to properly manage your small business’s cash flow is incredibly important. Use these tips to manage your budget and grow your business successfully.
Do you have more tips to improve cash flow management for a small business owner? Let us know in the comments below.
