Business Loans

How to Manage Cash Flow in a Developing Business

By | Leave a Comment

manage cash flow

One of the biggest challenges to growing your business is likely to be cash flow. When you run a business, you need money coming in to cover the money coming out. Unfortunately, your inflows aren’t always going to manage your outflows. In fact, no matter your working capital needs, and what you hope to accomplish through your business, without proper cash management, you could easily fall behind -- and join the 60 percent of businesses that fail within the first five years.

You don’t have to be a statistic. Carefully manage your business cash flow, and you will find yourself in a much better position overall.

Establish Regular Invoicing

The first step is to establish regular invoicing for those who owe you money. When setting up a new relationship, be clear about when you expect the invoice to be paid. In some cases, if you are dealing with a company that pays on a net 30 or net 45 basis, you might not have a lot of choice. However, regular invoicing, and an understanding of expectations, can provide you with an idea of when you can expect to be paid.

If you have the option, you can ask that your invoice be paid within 15 days, or within 30 days. Set forth consequences, such as late fees or interest charged after 30 days, to encourage on-time payment. When you make it a point to establish these payment policies up front, you are more likely to see on-time payment, and you’ll be able to better predict your cash inflows.

Manage Your Inventory

Of course, not every business provides services and products that are invoiced for. In some cases, your incoming cash is more about moving merchandise. This means that you need to learn how to manage your inventory.

Track which items sell faster, and which sell slower. Adjust your ordering so that you keep more of the faster-selling items on hand, and so that you order fewer of the slower-selling items. Consider switching to an on-order process for certain items that don’t sell well, or that sit for long periods of time. If you sell items online, you can find a drop-shipper that can help you manage your sales as appropriate.

If you find yourself ordering quite a bit from a single supplier, try to negotiate a lower rate. You can also shop around for better prices on your inventory, allowing you to save money as you stock your shelves. Every little bit helps.

Finally, while it’s not a pleasant prospect, you should also be prepared to sell items at cut-rate prices. If inventory has been sitting there for months, and you find yourself in need of cash, selling for pennies on the dollar might be your only option. Getting some cash flow is better than having none, so sell what you can, for what you can get, and learn from the experience.

Use Credit to Smooth Your Cash Flow

Many small business owners are reluctant to use credit. However, the reality is that even the largest, most profitable companies use credit. Look at the balance sheet of Apple or Exxon, two of the most profitable companies in the world, and you will see debt. This is because credit helps smooth your cash flow, and ensure that you can meet your working capital needs while you wait for your income.

Very rarely will your inflows come at just the right time for you to pay your expenses. This is where credit comes in. A good business loan or line of credit can help ensure that you have money to draw on when you need it. When you travel, or when you have utility expenses, pay for those costs with a business credit card (a reward card can be even better). A business loan or line of credit can help you with inventory and equipment purchases, as well as payroll.

small business loans

It’s much easier for your business to make regular payments on your credit than it is to try to come down with a large amount all at once -- especially if you are having a slow month and your cash flow isn’t quite what you expected. When your clients are paying late, or when business is slow, having credit to smooth matters can be a real help to your situation.

Set Up Continuity

If your business lends itself to continuity, look for those opportunities. In my case, I like to look for clients who have regular content needs. I charge them a little bit less, because I can count on them month after month. They form the basis of my business income, and it helps me manage my cash flow better.

When you can set up payment plans, recurring sales, and other methods of regular, expected payment, it can help you better manage your cash flow over time. There’s always the chance that something will happen to change the situation, and your clients could pay late or not honor the agreement, but you will be more likely to have a degree of stability.

Bottom Line

Your ability to manage cash flow has a lot to do with understanding the realities of your situation, as well as your ability to set up various plans and contingencies for your funding. Pay attention to the ebbs and flows of your business, and make sure you have available credit to smooth cash flow, and you will be more likely to succeed in the long run.


About Miranda Marquit

Miranda is a freelance writer and professional blogger specializing in financial topics. Her work has appeared in numerous media, online and offline. Her blog is Planting Money Seeds.

Compare banks for mortgage, auto, savings and CD rates. Browse bank rates. Search locally or nationally for the best finance rates.
Search locally or nationally
Compare banks for mortgage, auto, savings and CD rates.