Managing Cash Flow as a Small Business

No matter the size of your business, you need a plan for cash management. Staying on top of cash flow can not only help your business grow, but can also assist when unexpected expenses arise.

Why is Cash Flow Important? 

Cash flow can expose the financial health of your business by indicating how well your business generates cash to cover debts. It can show you times where it may be good to order more inventory or make a large purchase.

Common Cash Flow Problems for Small Businesses 

If you want to remain proactive in managing your cash flow as a small business, here are some common issues business owners run into.

• Not Having Enough in Savings – Whether it’s broken equipment or a change with a vendor, you should save extra cash for extra expenses.
• Not Properly Calculating Startup Costs – You many anticipate costs for things like rent, equipment, and payroll, but you also need to look at insurance, travel, and shipping.
• Unmet Revenue Expectations – While it’s important to set goals for a new business, understand that building one will take time.
• Not Defining What Expenses are Optional – Sure, you need to spend money to make money, but you also need to know what expenses you absolutely need in order to run your business.
• Low Profit Margins – Profit Margins can be difficult to determine. However, if you notice over time that things are not adding up, it may be time for a change.  
• Your Sales Peak for a Season – For seasonal or weather-based businesses, revenue can be feast or famine.
• Customers Delaying Payment – Your team completed the work months ago, but the invoice has been sitting in your customer’s email.

Cash Flow Definitions 

Accounts Payable

The amount of money your business owes to vendors, suppliers, etc. for services or goods received but not yet paid for.

Break-Even Point 

The point at which your total cost (fixed and variable expenses) and revenue are equal for a specified period of time.

Cash flow statement

A statement showing how cash is moving in and out of your business over a specific time, such as a quarter or year.

Negative cash flow

Negative cash flow is when a business’s expenses are more than the business’s revenue.

Getting a Grip on Cash Flow for Your Business 

While no business has a crystal ball, there are things you can do to potentially avoid a shortage of cash.

• Build an Emergency Fund – Consult with a financial professional to see how much you should be keeping in your emergency fund. Some sources say at least a couple months of operating expenses.
• Track Business Expenses in Real Time – Use software or a program to track expenses. Forecast any re-occurring expenses you have, such as rent or subscriptions.
• Send Invoices to Customer Promptly – Consider giving a discount for a quick payment.
• Plan for Your Slow Season – If you are a seasonal business, set aside income during your busy season to carry you through the slower months.
• Carefully Manage Your Inventory – While you don’t want to run out of an item, you also want to avoid having too much in stock.
• Regularly Review Your Cash Flow – Calculate how you are doing at the end of every month or quarter.
• Consider Leasing as an Option – Weigh the pros and cons of leasing your equipment versus buying it.

Insurance and Your Small Business 

It’s wise to regularly review your business insurance coverage types. For example, business interruption insurance can help to replace a portion of a business’s income in the event a covered peril occurs and causes a business to pause operations or temporarily relocate. If you are looking to get an insurance quote for your small business, you can start the process one of two ways. You can fill out our online form, and our team will reach out to you. You can also call one of our many local offices to start the quoting process.

• Online Quote Form
• List of our Local offices

Once you start the process, an experienced member of our team will reach out to you to gather more details about your business.

 

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This article is for general informational purposes only and is not to be relied upon or used for any particular purpose. Cross Insurance shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, insurance, accounting or other professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article are that of its author and do not necessarily represent the views of Cross Financial Corp. and its subsidiaries and affiliates (“Cross Insurance”) or Cross Insurance’s management or shareholders.