Manage Cash Flow in SMB

How to Manage Cash Flow in SMB

The concept of cash flow management is something that applies to any business. However, for small and medium-sized businesses (SMBs), cash flow management is especially important. SMBs are particularly vulnerable to cash flow problems due to their smaller size, limited resources, and potential lack of cash reserves. As a result, SMB owners and CFOs must have an effective cash flow management strategy in place in order to ensure their business’s success.

Why Cash Flow Management is Important

Cash flow is the lifeblood of any business, and SMBs are especially vulnerable to cash flow issues due to their size. Without proper cash flow management, SMBs can quickly find themselves in a difficult financial situation. Poor cash flow management can lead to late payments, missed opportunities, and even bankruptcy. Additionally, cash flow problems can have a negative impact on the valuation of the company if it is looking to exit in the future.

How to Improve Cash Flow Management

Fortunately, there are steps SMBs can take to improve their cash flow management. 

1. Optimize Accounts Receivable: Optimizing accounts receivable is a great way to ensure that your company receives payments on time. This can be done by setting up clear payment policies, offering incentives for early payment, and staying on top of invoices.

2. Reduce Expenses: Reducing expenses is another great way to improve cash flow. Look for ways to reduce overhead costs, such as switching to less expensive suppliers or renegotiating contracts. Additionally, make sure to pay close attention to any non-essential expenses that can be eliminated.

3. Utilize Short-Term Financing: Using short-term financing can help SMBs improve their cash flow. Short-term financing can provide access to liquid funds that can be used to pay for essential expenses, such as payroll and inventory.

4. Invest in Automation: Investing in automation can help streamline processes and reduce manual labor costs. Automating processes can also help reduce errors, ensuring that payments are received and invoices are paid on time.

Where You Can Read More About Cash Flow

• nvestopedia: Investopedia has a comprehensive guide to cash flow and how to manage it.

• Entrepreneur: Entrepreneur has an article that provides tips on how to improve cash flow.

• The Balance Small Business: The Balance Small Business has an article that provides an overview of cash flow management and how to get started.

• Forbes: Forbes has an article that provides advice on how to manage cash flow for small businesses.

Sources

• Investopedia. (n.d.). Cash Flow. Retrieved from https://www.investopedia.com/terms/c/cashflow.asp 

• Entrepreneur. (2020, August 17). 7 Ways to Improve Cash Flow. Retrieved from https://www.entrepreneur.com/article/353067 

• The Balance Small Business. (2020, August 20). Cash Flow Management: How to Improve Cash Flow. Retrieved from https://www.thebalancesmb.com/cash-flow-management-2948260 

• Forbes. (2020, June 11). Five Tips To Manage Cash Flow For Small Businesses. Retrieved from https://www.forbes.com/sites/forbesbusinesscouncil/2020/06/11/five-tips-to-manage-cash-flow-for-small-businesses/?sh=5f71a2f07bac