Managing Cash Flow for Business Prosperity¹
Business owners know that cash flow is the life blood of their business; and the ability to manage it effectively, from start-up through the critical growth stages, is often the key difference between success and failure.
With the array of cash management solutions available, small business owners never have to be in the dark about their cash situation, and their cash will never sit idle again.
The day-in, day-out process of managing cash flow feels more like a chore than a thrilling part of owning your own business. Whether viewed as one of the privileges of running the show or as a necessary evil, cash flow management has proven time and time again to be vital to the success of a business. Cash is what sustains both the freshest startup and the mature operation, but all too often this critical discipline is overlooked by even the most seasoned ownership.
Cash flow management becomes particularly important when a small business reaches a turning point or transition stage. Having a firm grasp of available cash while being able to forecast future cash flows during times like this isn’t enough; it’s also important to have a solid grasp of upcoming spending needs. Maintaining a 6 to 12 month cash flow forecast is necessary to diagnose the current health of the business and evaluate the future solvency of the enterprise.
The cash flow forecast
Developing this forecast begins with a comprehensive inventory of positive cash flow, taking into account sales made via cash, credit, or special terms. It’s also important to take into account cash from borrowing activity or from investors.
Once cash inflows are understood it’s time to document the expenses of the business. This includes obvious items like payments, payroll for employees and contractors, any lease obligations, tenancy agreements, taxes owed, and supplier contracts. It is critical to capture both the size and the timing of these payments, as this will allow the business owner to understand the amount of cash needed at any given point in time to keep the business going. This exercise can also help the astute manager identify periods of time that are risky in terms of their uncertainty from a cash-demand perspective.
Business owners looking to adopt robust cash flow management tools have more options than ever before. Banks that cater to small businesses offer proven solutions that combine financial expertise and modern technology to deliver effective cash flow management at the click of a mouse.
Why cash flow management is worth investing in
Forward-looking businesses can maximize the benefits of cash flow by increasing their effectiveness at bringing cash in while carefully managing the cash going out. This effective method of funding business growth is practiced by some of the largest brands in America, and small business owners are quickly realizing the benefits of adopting solutions that allow them to carefully manage their cash.
Optimize incoming cash
Turning sales into cash on hand is a hallmark of a thriving business. Every business has cash needs, and losing a grip on receivables is one sure way to run out of cash sooner than later. The best cash flow management solutions provide a structure for keeping track of incoming cash.
Communicating clear terms for customer satisfaction
One easy way to maintain a disciplined receivables strategy is to enforce the payment terms on sales. Giving customers undue flexibility in providing prompt payment is a great way to ruin an otherwise prosperous business. Providing and adhering to clear payment terms is a good way to make sure your customers feel treated fairly , and most customers prefer to have easily understood payment expectations if for no other reason than the purpose of managing their own cash flow. It may seem counter-intuitive, but being loose and unstructured in your billing practices and letting invoices run late isn’t good customer service.
Keeping billing simple
Too many business owners struggle to get the invoices out each month, and when invoices don’t go out, cash doesn’t come in. Incorporating easy to use technology from a bank that understands business needs can streamline the process of getting invoices in the hands of customers and converting hard-earned sales into much needed cash. The traditional method of producing invoices periodically, instead of invoicing on demand, exposes your business to the risk of cash coming in later than necessary.
Collect without the hassles
Dealing with collections tends to be expensive for business owners, both in terms of time spent and mental energy. Incorporating technology that provides important data like payment owed and invoice age can simplify the process of collecting and allow for collection activity to focus on the accounts that matter most. Talk to your banker about adding automation to the collections process to save time and improve cash coming in the door.
Go electronic to facilitate payment
Modern business banks offer great value for businesses looking to add electronic payment processing. More customers than ever are looking to pay electronically via electronic funds transfer or on their credit card, and by incorporating these additional payment methods it’s possible to increase the security and speed at which you can bringing cash into your business.
Keep your cash moving
Gone are the days of making a regular run to the bank to deposit or transfer surplus cash. Savvy business owners now enjoy the benefits of systems designed to evaluate your surplus cash position every day and sweep extra cash directly into accounts that generate interest. This has the dual benefit of ensuring that adequate cash is on hand to run the business the next day while keeping everything above this level in accounts that provide interest income.
Time your outgoing payments by going digital
Seeing how extra cash in the bank can generate interest on a daily basis the benefits of carefully timing payments to vendors becomes apparent. The cost of issuing payments manually and according to an arbitrary schedule extends beyond lost interest-income. Any mistakes and hours spent paying 3rd parties can quickly add up, and in the worst case an imprecise payment schedule can result in an accidental cash shortfall.
Adopting an automatic payables system that incorporates electronic payment methods and a live view of all outflows provides a reliable and cost effective way to manage payments.
Trusting the payroll experts
Payroll is critical to a small business, and like any important task it demands time, effort and expertise to get it right. This is why many businesses today use automated payroll systems as a way of managing the risks associated with payroll while enhancing the confidence of workers. New technologies, like payroll cards powered by Visa®, provide additional flexibility and protection for business owners and employees looking for an easier way to handle payroll.
Connect with your bank to maximize your cash flow management
One of the great benefits for small business owners in this new era of secure technology and business automation is the ability to partner with expert solution providers for all these cash management needs. When it comes to adopting the latest electronic payment methods like ACH (Automated Clearing House) and seamlessly moving cash from one account to another, all in the context of a well-managed system for managing inflows and outflows, business owners have more options for maximizing their cash position than ever before. Banking solutions that offer ways to accelerate cash coming in and carefully orchestrate the cash going out of the business bring much needed flexibility and efficiency to businesses of any size.