5 Tips for Managing Your Business Cash Flow

Eric Weynand, Founder

Cash is the lifeblood of a healthy business. If you don’t have a handle on your business cash flow, it can hinder your growth or send things spiraling in the wrong direction. The faster your organization is growing, the more important cash flow tracking becomes. But every business faces cash flow challenges at some point. The good news is, you can usually avoid them with some smart cash management and bookkeeping practices. 

Use these tips to help stay on top of your business cash flow and mitigate potential problems. 

Measure Business Cash Flow on 3 Time Horizons 

Before you can plan for and improve your business cash flow tracking, you have to know how to measure it. You can examine your cash flow in three main ways: immediate, short-term, and long-term. 

  • Immediate cash flow equals how much money you currently have in the bank, plus or minus all inflows and expenses expected within the next few days. This number tells you how much cash you can spend on paying expenses, investing, and distributions (owner payments) in the immediate future. 
  • Near-term cash flow is a thirteen-week rolling cash flow model to help you predict upcoming cash crunches.
  • Long-term cash flow looks at money in and money out during a longer period. This could be twelve months or even a few years down the line. When you forecast future cash flow and identify potential hiccups, you’re much better equipped to correct or even prevent them.

Understanding all three will provide clearer insights into your business’s financial status, including future opportunities and risks.

Stay on Top of Billing and Collections 

If you got paid for every sale as soon you made it, you’d never have to worry about cash flow. Unfortunately, that’s not always the case, especially for service-based businesses. But you can still improve your business cash flow by staying on top of your Accounts Receivable (A/R) each month. 

Make the billing and collections process clear and consistent for both your clients and your employees. Include clear payment terms in your contract to make sure clients understand:

  • How to pay you
  • When to pay you (payment due date)
  • How you’ll handle late or missed payments 

You might also consider asking for deposits at the time of sale or offering a discount for full payment upfront.

Doing the above helps both clients and employees stay on track, and also saves you a ton of time. By the way, setting clear payment expectations with your clients goes a long way — but it’s only a baseline for creating a stellar payment experience.

Avoid Using Sales Tax Money to Float Your Operations 

If you sell a product, you’ll collect a lot in sales tax. It can be tempting to use these funds in business operations. But using sales tax receipts as working capital can have consequences. It raises your tax liability and puts you at risk for penalties, interest, and other fees. 

Rather than using your customers’ sales tax payments to float business operations: 

  • Deposit sales tax money directly into a separate bank account, if you find you don’t have the cash on hand when it comes time to make the payment
  • Make sure your balance sheet properly reflects all outstanding liabilities, including things like customer deposits, sales tax payable, and income tax payable
  • Calculate your Net Working Capital (current assets minus current liabilities) to see true net available cash
  • Consider short term financing, if necessary 

Keep a Close Eye on Expenses that Eat into Business Cash Flow

As your business grows, so do expenses. Keep an eye on your spending to make sure expenditures aren’t growing faster than sales. There are a few ways to manage your expenses, or Accounts Payable (A/P), that can keep more money in your account, longer: 

  • Don’t pay everything at once. Prioritize bills by “must pay now”, “important to pay”, and bills from vendors who may offer a grace period.
  • Take advantage of the full payment term. Instead of paying after two weeks for a Net 30 bill, schedule payment for the day before it’s due.
  • Evaluate need and ROI vs cost before taking on new expenses.
  • Take advantage of discounts for paying in-full, paying early, or flexible payment terms.

Know When to Hire Help

There are good reasons to hire a bookkeeper at various points in your business growth. But as a business owner who’s looking to save money, how do you know when it’s necessary? 

Consider the following to help you determine if you’d be better off hiring someone to help manage your business cash flow

  • You’re consistently having trouble paying vendors or employees on time 
  • You’ve made adjustments, but it hasn’t helped
  • You’re in the midst of a major expansion 
  • You need more time for more important tasks that will help the business grow

In addition, don’t forget to ask yourself these key questions: How much time is it taking to complete financial calculations and How much is your time worth? If it takes 10 hours at $100/hour to complete your financial reporting and other processes, you might be better off calling in help.

Remember, fine-tuning cash flow management keeps your business scalable and reduces friction as you grow. Whether you need a payroll service, a full or part-time bookkeeper, or you just need help during tax time, calling in a pro will keep you on track and make your life easier. 

Get in touch to see how PlotPath can help you improve your cash flow through expert bookkeeping, financial reporting and CFO services.