13 Successful Strategies for Managing Cash Flow in Small Businesses

By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team
Published on June 30, 2023

Managing cash flow is crucial for small businesses, and we’ve gathered insights from 13 experienced professionals to help you succeed. From embracing automation and forecasting tools to utilizing historical data forecasting, discover the top strategies these founders, CEOs, and marketing experts have used to manage cash flow effectively in their businesses.

  • Embrace Automation and Forecasting Tools
  • Establish a Cash Management Cadence
  • Benefit From Cash Flow Projections
  • Implement an Effective Invoicing System
  • Review Your Cash Flow Statement Daily
  • Adopt a Strict Credit Control System
  • Try Zero-Based Budgeting and Tracking
  • Have a Line of Credit as a Safety Net
  • Automate Processes and Secure Credit
  • Sell Excess Inventory for Cash
  • Nurture Strong Vendor Relationships
  • Prioritize and Forecast Cash Flow
  • Utilize Historical Data Forecasting

Embrace Automation and Forecasting Tools

From one small business owner to another, I have two tips for managing cash flow: 

Leverage the Power of Automation: I suggest leveraging the automation available in expense management tools like Expensify or Zoho Expense. These tools allow you to capture receipts effortlessly, categorize expenses, and generate insightful reports. By automating expense tracking, we have saved time and reduced errors.

Gain Insights from Cash Flow Forecasting: I strongly suggest using tools like Float or Pulse to project future cash inflows and outflows. By analyzing trends, predicting upcoming expenses, and identifying potential shortfalls, you’ll have the power to make proactive decisions. Like a form of financial wizardry, forecasting can help you be prepared for any financial challenges that lie ahead.

Tali Ditye, Ph.D., Editor-in-Chief and Co-founder, Mommyhood101.com

Establish a Cash Management Cadence

Design control over your inflows and outflows of cash. To manage cash flow for a small business, it’s easy to lose touch with your cash timing and to rely too much on your current bank balance as a metric of business health. 

In order to manage more consistently, set up a recurring cadence for invoicing and bill pay. For example, you bill your customers every Monday and you pay your bills on the 1st and 15th of each month. By adhering to a consistent rhythm of cash management, you can well understand your cash movements and have more control over your cash flow.

Roman Villard, Founder, Full Send Finance

Benefit From Cash Flow Projections

Cash flow projections are one of the best tools that help me manage the cash flow of my small business. By forecasting the expected cash inflows and outflows, I can make informed decisions about the right time to make investments and take measures to minimize risks. 

This strategy has helped me maintain a positive cash flow by avoiding unnecessary expenses and keeping track of the money that needs to be collected. I regularly update my projections with actual numbers to refine my financial review process and stay on track with my goals. 

I believe this technique is essential for any small business owner who wants to take control of their financial situation and grow their business while minimizing risks.

Jefferson McCall, Co-founder and HR Head, TechBullish

Implement an Effective Invoicing System

One effective strategy I have used to manage cash flow in my small business is implementing a rigorous invoicing and payment tracking system. By promptly sending out invoices and closely monitoring payment statuses, I gained better visibility into cash inflows and could take timely action to follow up on overdue payments. 

I also offered incentives for early or on-time payments, such as discounts or additional services, to encourage prompt settlement. This approach helped improve cash flow by reducing outstanding receivables and ensuring a steady stream of income. 

Leveraging online invoicing platforms with automated reminders and payment tracking features simplified the process and saved valuable time.

Brian Clark, Founder, United Medical Education

Review Your Cash Flow Statement Daily

One effective strategy I have used to manage cash flow is to check and update my cash flow statement daily. By reviewing it regularly, I can identify any errors or discrepancies and take immediate action to rectify them. 

This practice helps me maintain a clear understanding of my financial numbers and ensures that I am making informed decisions based on accurate information.

Loren Howard, Founder, Prime Plus Mortgages

Adopt a Strict Credit Control System

The strategy I used was implementing a strict credit control system. This involved closely monitoring my clients’ payment behavior and enforcing stricter payment terms. I made it a priority to send out invoices promptly and follow up on any overdue payments. 

I implemented a clear payment policy and communicated it to all clients upfront. This helped me reduce late payments and improve cash flow. By taking a proactive approach to credit control, I could minimize the risk of outstanding debts and maintain a healthy cash flow.

Adil Advani, Marketing Director, AnySoftwareTools

Try Zero-Based Budgeting and Tracking

One effective strategy I found beneficial in managing cash flow for a small business was implementing a “zero-based budgeting” system. The premise of zero-based budgeting is that all expenses must be justified for each new period. At the start of each month or quarter, every line item in the budget starts from a “zero base,” with every function within the organization analyzed for its needs and costs.

Using this strategy forced a comprehensive review of all expenses, which helped cut down on unnecessary costs. By justifying every expenditure, we ensured each dollar spent was generating value for the business. This practice also fostered a culture of cost-consciousness within the team, as everyone was encouraged to think critically about their spending.

We also integrated a cloud-based accounting system to help with real-time tracking of cash flow. This allowed for immediate visibility of income and outflows, ensuring we could take swift actions if required. Implementing these strategies proved highly effective in managing cash flow for our small business.

Shumail Ur Rehman, Digital Marketing Consultant, Insane Perfumes

Have a Line of Credit as a Safety Net

When I started my business, I opened a line of credit with my bank. I only needed to use it once, but it saved my company. We had an issue with our credit card company not depositing money into our account, and we didn’t get the funds for 2 weeks. Our checking account didn’t have enough to cover payroll. 

If I didn’t have the line of credit open, I am not sure what I would have done to ensure my employees got paid. If you have issues paying employees, you will have employees quitting quickly. I tell all new business owners to open a line of credit as a backup safety if they ever find themselves when they need extra cash immediately.

Evan McCarthy, President and CEO, SportingSmiles

Automate Processes and Secure Credit

Automating manual back-office processes like accounts payable and accounts receivable is a great way for SMBs to cut costs and increase efficiencies in their finance department. Automating AP increases visibility across outflows so that finance leaders can strategize their payments and optimize their payment mix. 

By automating manual tasks across the AP and AR workflow, finance teams can minimize human errors, save time and money, and scale more quickly for growth, adding no additional headcount budget.

Another important cash flow management technique is securing a working line of credit. Experts predict a credit crunch is coming soon, which will make it more competitive and expensive for small business owners to get access to the cash they need to keep their businesses running. 

Securing a working line of credit now is a crucial insurance measure for small teams who may need quick access to cash in the future in order to invest in their growth or just make payroll.

Katie White, Content Marketing Manager, Centime

Sell Excess Inventory for Cash

Selling excess inventory or equipment can be an effective way to generate immediate cash to cover expenses or invest in growth opportunities. Businesses often overlook this option to manage cash flow, but it can be especially helpful for small businesses. 

By streamlining operations and reducing clutter, businesses may find that selling off excess inventory or equipment can also help cut costs. For example, a small retail business with too much inventory could sell off excess items in a clearance sale or in an online marketplace to free up cash. Or, a small construction business with unused equipment could sell those items to a competitor or rental company. 

Regardless of the specific approach, selling excess inventory or equipment can be an effective way to boost cash flow and improve the financial health of a small business.

Roy Lau, Co-founder, 28 Mortgage

Nurture Strong Vendor Relationships

As a CEO of a book publishing company, one successful cash flow management strategy I’ve employed involves nurturing strong relationships with vendors. Ensuring that you have a good rapport with your suppliers allows for better negotiation of payment terms. 

I’ve been able to extend payment deadlines or establish installment plans during tight cash flow periods, which helped us manage our expenses without disrupting operations. It’s a strategy that requires trust and consistent communication; we always ensure we meet agreed-upon terms and keep vendors informed about our financial situation. 

This approach has not only eased our cash flow management but also solidified long-term relationships with our vendors, securing an important aspect of our business ecosystem.‌ What’s most important is the connections you make along the way with a long period of smooth-sailing business.

Vikrant Shaurya, CEO, Authors On Mission

Prioritize and Forecast Cash Flow

I have found that one of the most effective strategies for managing cash flow is prioritizing and forecasting upcoming cash flow needs. This involves analyzing upcoming expenses and revenue projections and creating a plan to ensure that there is always enough cash on hand to cover those expenses. 

By prioritizing upcoming needs and forecasting cash flow, I can make informed decisions about when to invest in growth opportunities and when to save for leaner times. This strategy has helped me to avoid unexpected cash shortages and maintain steady growth for my business.

Anirban Saha, Founder, MrPlanter

Utilize Historical Data Forecasting

One effective strategy we have used to manage cash flow in our small business is implementing proactive cash flow forecasting, which involves predicting and planning our business’ cash inflows and outflows over a specific period, typically monthly or quarterly. We have effectively used this strategy by tracking and analyzing historical data.

We review our past cash flow statements and financial records and identify patterns, seasonal fluctuations, and trends in our cash flow. We then use the historical data as a baseline for forecasting expected revenue and expenses in the upcoming month, quarter, and year.

We add in a targeted percentage of revenue growth based on our sales & marketing strategy and monitor the forecast to actual each month and quarter, making any adjustments needed.

This has helped us gain better visibility into our business’s financial health, and we’ve made informed decisions to manage our cash flow effectively.

Deirdre Harter, Co-founder, CPA, and Business Strategist, Encore Empire, LLC

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By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team

Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.

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