Fueling Growth: The Cash Flow Blueprint for Small Businesses
Just how important blood is in our body? Can we live without it? Big NO! The same thing with cash in a business. Your business won’t survive very long without any cash. That’s why “Cash is queen” has been our favorite line and will always be!
Now, being a small business owner doesn’t require a diploma in finance or any accounting certifications, but your business, your team, and your stakeholders expect you to have at least the knowledge of being able to read financial statements – your balance sheet, income statement, and cash flow statements so that you can make business decisions that are financially sound.
Profit (income statement) and business net worth (balance sheet) are critically important to understand, but what is equally imperative that many business owners skip understanding is your CASH FLOW statement! If you don’t know how to manage your cash flow properly, you can’t expect to have a financially healthy or financially sustainable business. So why is cash flow so important?
According to US Chambers’ report, 36% of small businesses say that competition has in the 3rd quarter of 2023. 50% of them say that they have delayed plans to grow their business due to rising interest rates. With all this data – from increasing competition to increasing interest rates – you might ask:
“Marguerite, how can I keep my business thriving and chart a course to financial success?”
Well, let’s tackle that question through your Finance Savvy CEO guide through cash flow management 101!
So, hang in there with me for a minute and I’ll show the exact proven and tested financial strategies to conquer cash flow challenges and steer your business towards financial sustainability.
But first …
WHAT IS A CASH FLOW?
Cash flow is the lifeblood of any small business. It’s the money coming in and going out that keeps your operations running smoothly. It’s the cash that flows into your business from sales, investments, or loans, and the cash that flows out to cover expenses, salaries, and other financial obligations.
Since this article will focus more on the strategies to improve your cash flow, I have created a separate article on the three components or movements of cash flow in your business and it is your job to track and manage these components to fully benefit from the insights they will provide to you as the business owner. Click here to read more.
HOW TO IMPROVE YOUR CASH FLOW?
Just like how you brush your teeth on a regular basis, there are certain things that you need to be doing on a daily, monthly regular basis too, to make sure that your small business is maintaining that good business financial hygiene as this is the key to running a successful business that is profitable. So let’s go ahead and dive right into it.
Your mindset plays a significant role in managing cash flow. Cultivate a mindset focused on financial responsibility, savings, and growth. Embrace a positive attitude towards money and be willing to adapt to changing financial circumstances in order to build a fortune like a millionaire.
Having a cash reserve is like having a financial safety net. Set aside a portion of your cash position regularly to create a cushion for unexpected expenses or lean periods. This reserve will help you weather financial storms without jeopardizing your business.
Do you know the estimated number of months your business can go with no sales and still cover your monthly cash operating expenses (cash runway)? If not, click here to determine your cash runway now.
Explore opportunities to generate passive income streams that can supplement your primary cash flow. This could include investments, rental income, affiliate marketing, or digital courses. Diversifying your income sources adds stability to your finances.
A money date is a dedicated time you set aside each week to review and manage your business finances. It is like a scheduled appointment with your money, where you can assess your financial health, track expenses, plan for the future, and make informed business decisions. Think of it as a date with your financial well-being, where you give your money the attention it deserves. The Intentionally Profitable Planner, weekly money dates edition will help flawlessly guide you through conducting your own weekly money date. You can can grab yours here.
In addition to weekly check-ins, conduct comprehensive quarterly business reviews. At the start of every year, we’re all about setting financial goals, targets, and expectations for the year ahead (kinda like our small business’s New Year’s Resolution). Conducting your QBR is basically a way to look back and reflect on how your business did financially over a certain period of time. Think of these QBRs as hitting the pause button to take a closer look at your finances and make sure you’re on track to achieve your goals. This proactive approach will help you spot and address cash flow issues early.
If conducting a quarterly business reviews (QBR) alone sounds overwhelming, or you have no idea where to start, or what to include, grab Finance Savvy CEO’s The Intentionally Profitable Planner now to help you conduct your QBR so that you can achieve your money goals and transform your financial trajectory through intentional financial planning and cash flow management!
Managing cash flow doesn’t have to be a solo endeavor. Build a financial squad that includes a bookkeeper or accountant, a tax professional, and, as your business grows, a chief finance officer (CFO). These experts will ensure your financial affairs are in order and compliant with regulations.
✔️ A Bookkeeping & Accounting Solution.
This will make sure that all of your financial transactions are correct to ensure effective financial analysis and tax filings.
✔️ A Tax Solution.
This will ensure that you are filing your quarterly or annual taxes on time based on your business structure and state/federal requirements.
✔️ A Business Financial Plan
This is the base of your entire financial foundation. It’s the basis to support growth and scale your business effectively … and profitably! And this is connected to the next strategy to improve your cash flow …
Your business financial plan marries the strategy you’ll be implementing in your business with the money side of how you’ll bring that strategy to life. Your business financial plan should be a dynamic document that evolves with your company’s needs. Regularly update it to reflect changes in your goals, strategies, and financial projections. A well-maintained plan will guide your cash flow strategies and help you stay on track.
Accounts Receivable is an accounting term for the “money that the customers/clients owe to you in exchange for the goods and/or services that you’ve already provided to them.” In a nutshell, you’ve provided the customer with your product or services and now you’re waiting to actually receive the cash for your hard work. Having a good understanding of the importance of the accounts receivable and managing them is very crucial for maintaining the good financial health of your cash. Even if you have just a handful of customers that are bad about paying you on time, it still can hurt and affect your business in a bad way. If you have bills that need to be paid, but you’re still waiting on a customer to pay you, you can easily find yourself in a tough situation as a business owner. So, ensure you’re keeping a close eye on any invoices that haven’t been paid in order to keep your cash flow in check.
5. Manage Accounts Payable
To an individual, an Accounts Payable is just like the unpaid bills you have. But in the business world, Accounts Payable are “the amounts your business owes to your suppliers/vendors for the goods/services that you’ve already received from them, but not paid for.” Effectively managing your Accounts Payable not only ensures that your bills are being paid on time to help avoid costing your business more money by paying late penalties, but effective management also helps you establish and maintain a good relationship with the vendors/suppliers (PLUS a good credit standing!).
Mastering the art of cash flow management is the key to ensuring the long-term health and success of your small business. Just as our bodies depend on a healthy flow of blood to thrive, your business relies on the steady circulation of cash to stay afloat.
These are essential strategies to keep your strong financial pulse on your cash. By cultivating the right mindset, building a cash reserve, creating passive income streams, keeping an eye on both your accounts receivables and payables, and maintaining a dynamic financial plan, you can navigate the bumpy road of cash flow management with confidence.
Remember, cash is indeed queen, and with these tools in your arsenal, you’re well-equipped to steer your business toward prosperity, even in the face of rising competition and economic fluctuations. So, go ahead, put these strategies into action, and watch your small business flourish.