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Money ebbs and flows: regardless of your situation, whether your small business deals in an industry like retail with peaks during holiday seasons or consultants who are always waiting on invoices, managing cash flow can present a real challenge to your small business. Your business may even be healthy and growing — but can it make it through times when there is not a lot of income?

This is the basic definition of cash flow: fundamentally, it is the amount of money your company spends versus how much it takes in. When you take in more money than you spend, you have a positive cash flow; alternatively, when you spend more money than you earn you have a negative cash flow.

Did you know that 1 in 4 small businesses fail due to cash flow problems?

Stay ahead of the game! Here are five ways you can learn about your company’s cash flow, and how to turn it from a negative flow to a positive one:

  1. Keep Business & Personal Finances Separate

Do you make purchases for your business on your credit card? If so, stop right there — intermingling your spending for yourself and your company will only inhibit your understanding of your business finances.

If you’re not sure how to uncouple your professional and personal spending, you can start by creating separate checking accounts, separate your receipts, and get a business credit card — for more, check out this article by Square.

In disjoining your own spending from your business, you will be able to also predict the needs of your business.

2. Forecast

Where does your business stand right now? Would you be able to keep up if it proliferated?

These are the types of questions that forecasting can answer for you, from predicting inventory costs and needs to seeing the spending on how many people you may potentially have to hire in the future.

There are quite a few ways to do this: the SBA offers an excellent guide for your reference, which includes links to templates of excel worksheets you can use to anticipate your sales cycles and how much you will need to spend in the upcoming year.

3. Negotiate Payment Terms

After conducting a financial cash flow analysis, did you notice that dates, when you send payments to suppliers and service providers, do not match up for when you get paid?

Consider renegotiating your terms of payment — instead of 30-day payments, try to see if they would be willing to stretch it to an increment of between 30 and 90 days. Or, you could attempt to mediate a payment date that switches the cycle around from paying first to paying after you receive monetary returns.

4. Track Your Invoices, Set Terms of Payment and Follow-Up

No luck haggling with your providers?

Another way you can improve your cash flow is by keeping track of your invoices.

Are you owed payment? 22.5% of businesses indicated that late payment invoices were their biggest challenge, and more than one-third of businesses are not paid on-time.

The simplest way you can improve the on-time payment rates for your invoices is by being transparent with your payment terms and conditions. To reduce the amount of time on invoice processing, you should have a system in place: for example, if a customer wants to return a product but it takes weeks to settle that means that it will take even longer for you to finalize that invoice.

For this reason, it can benefit you to have an online invoicing system such as FreshBooks, Xero, and QuickBooks — these solutions allow you to keep track of your invoices all in one place, and to send gentle, friendly, automated reminders when a payment is overdue.

You can boost on-time payments by creating incentives for early payments, and payment discipline for when payments are late. If someone compensates you before or on your pay-by date, you can offer discounts. Should someone be tardy on reimbursing you, you can add interest to their charge.

5. Have a Line of Credit Ready

Before all else fails, opening a line of emergency credit can be your safety net — the last thing you want is to be in need of money, and not have any options, so it is best to secure this credit-line early on.

To learn more about the different types of credit and how to obtain them, read these articles by FitSmallBusiness and Forbes.


Looking for other ways to help save your business money?

Automation with software is key, but why waste time searching for them yourself: CUE offers curated software solutions by our team of experts to answer the needs of your company — check out our marketplace, and see how we can help you!