Here's How to Manage Cash Flow!

Happy Sunday!

We are back for another edition of The Bottom Line and this week we are talking about one of the most important aspects of business, Cash Flow Management!

Whether you are a small or large business, these are 5 areas that have proven time and time again to benefit businesses when it comes to managing cash flow. I have helped manage cash for companies bringing in <$1M annually up to companies bringing in >$1B annually. These areas of focus have always applied no matter the size of the business. Let’s dive in!

1. Accurate Cash Flow Forecasting 📊

Accurate cash flow forecasting gives you first hand insights into where your business will be in the coming week or months. By projecting future cash inflows and outflows with precision, businesses can anticipate liquidity needs, identify potential shortfalls, and proactively devise strategies to address them. Leveraging historical data, market trends, and predictive analytics, businesses can create robust cash flow models that empower informed decision-making and strategic planning.

Effective forecasting enables businesses to navigate seasonal fluctuations, capitalize on growth opportunities, and weather unforeseen challenges with resilience. It provides the foundation for sound financial management, empowering businesses to allocate resources strategically, optimize working capital, and drive sustainable growth.

In this video, I discuss how forecasting your receivables each month can help you determine what cash will be coming in the door from your customers and this can be as accurate as what DAY those invoices will be hitting the bank!

2. Receivables Management 📬

Optimizing receivables management is paramount to ensuring a steady stream of cash inflows into the business. Promptly invoicing customers, establishing clear payment terms, and implementing diligent collections processes are essential steps in managing receivables effectively. By minimizing outstanding receivables and reducing payment cycles, businesses can accelerate cash flow and improve liquidity.

Furthermore, cultivating strong customer relationships and fostering open communication can expedite payment processing and mitigate the risk of late or delinquent payments. Leveraging technology solutions such as automated invoicing and electronic payment platforms streamlines receivables management processes, enhancing efficiency and reducing administrative burden.

For anyone reading this who manages receivables specifically, check out these 10 tips I shared on YouTube that will definitely help you and your team bring that cash in on time.

3. Payables Management 💳

Just as managing receivables is crucial, so too is optimizing payables management. Businesses must strike a delicate balance between meeting financial obligations and preserving cash reserves. Implementing rigorous payables processes, including invoice verification, approval workflows, and timely payment scheduling, ensures accuracy and accountability in payment processing.

Moreover, negotiating favorable payment terms with vendors, leveraging discounts for early payments, and optimizing working capital cycles contribute to improved cash flow management. By prioritizing payments strategically and optimizing cash flow cycles, businesses can optimize cash flow and maintain strong vendor relationships.

Make sure you are inquiring about the terms you have with vendors. It never hurts to ask and I think you’ll be surprised at how others may work with you when this is discussed. Example at a prior company we told vendors our standard terms were 90 days. That was our starting point for negotiating with them so we were more likely to either get 90 days to pay or work somewhere between 30-60 day terms, which helps us hold onto that cash longer!

4. Building Cash Reserves 💰

Building cash reserves serves as a financial safety net, providing businesses with a buffer against unforeseen expenses, economic downturns, or disruptions in cash flow. Establishing a disciplined approach to cash reserve management involves setting aside a portion of profits or cash inflows for contingencies.

Maintaining adequate cash reserves enables businesses to seize opportunities for growth, invest in innovation, and navigate challenges with confidence. It provides a cushion to cover operational expenses, service debt obligations, and sustain business operations during lean periods, ensuring financial stability and resilience.

This is big for small business owners. Cash flow is the lifeblood for many small businesses (including me!) so I make sure I am working to slowly build this when possible. Will every month turn up results to reserve “x” amount? No. But when we are able to bring cash in quickly, negotiate longer vendor terms, and manage #5 below closely we can begin to put money back for a rainy day.

5. Expense Control 📉

Controlling expenses is a fundamental aspect of cash flow management, as every dollar saved contributes to enhanced liquidity and financial health. Conducting regular expense audits, identifying cost-saving opportunities, and implementing efficiency measures are essential steps in controlling expenses effectively.

Moreover, fostering a culture of fiscal responsibility and accountability among employees encourages prudent spending habits and maximizes resource utilization. By optimizing expense management processes and eliminating unnecessary expenditures, businesses can optimize cash flow, improve profitability, and position themselves for long-term success.

If you have a purchasing card (credit cards) program and your team members have a company credit card you need to set boundaries on spending up front. They should have limits on how much to spend on meals, client visits, etc. This is one area that I inspect when businesses are struggling to manage cash and find out that they are spending a ton of money on things that aren’t crucial or needed for the business. Analyze your credit card statement closely each month and make sure there’s an approval process in place where leaders are held accountable to reviewing, approving, and discussing purchases with team members.

This one means a lot to me and I hope this is helpful and gives you some tasks to take back this coming week to implement and discuss.

Have a fantastic week!

—Brad

Do you want help developing a cash flow forecast? Give me a call at 812-207-1863 or message me at [email protected] today and we will setup a time to connect. This will not be a very long process to work with you and help you manage/put in place for your business or team.

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