1. What is cash flow management?
2. Why managing cash flow is important
3. Cash flow management strategies
4. Examples of poor cash flow management
5. Cash flow statement example
6. 4 cash flow management business tips

When it comes to running a successful business–regardless of the size–managing cash flow is of the utmost importance. Small businesses rise and fall based on their ability to pay vendors, with some 75% of small businesses finding it difficult at any given time to keep enough money in their bank accounts to pay their actual vendors. And businesses can’t run, let alone grow or thrive if they don’t have knowledge, control, and–most importantly–access to a healthy cash flow. But keeping your cash flow healthy means fully understanding cash flow management and that isn’t always an easy proposition.

To help businesses better understand the intricacies of managing cash flow, we’ve put together a simple FAQ. We’ll walk you through the basics of cash flow management–What is cash flow management in business? Why is cash flow management important for business?–as well as showcasing poor examples of cash flow management and showing what a well-organized cash flow statement looks like. Finally, we’ll provide a few cash flow strategies and cash flow management business tips to help show the way to a better, healthier cash flow.

Let’s start from the top: what is cash flow management?

What is cash flow management?

Cash flow management for business is, simply put, the process of tracking, understanding, and controlling the money coming in and out of your business. Cash flow on its own simply refers to the amount of cash on hand a business has from one day to the next based on how much money a business is making and how much they’re spending. Cash flow management for business allows a company to keep track of their cash flow–past trends, current status, upcoming obstacles, etc.–and to create an analysis based on their improved understanding.

Understanding the basics of managing cash flow is crucial to the success of a business because it allows you to look ahead and predict the money you’ll have on hand in the future. Knowing this information allows you to strategize how to best pay your vendors based on the status of your cash flow. If you understand cash flow management for business you’ll be ready for unexpected expenses but also be able to pay recurring bills–like labor, inventory, and rent–on schedule. In general, managing your business’s cash flow well ensures that you always have the cash on hand you need to pay the expenses you need to pay.

Good cash flow management isn’t always easy, and later on in our guide, we’ll provide a few cash flow management business tips as well as a few key cash flow management strategies. But first, let’s dig a little deeper into why managing cash flow is important for businesses of all shapes and sizes.

Why managing cash flow is important

Maintaining a healthy cash flow is, without exaggeration, the most important aspect of any business. By keeping your cash flow healthy a business will have access to funds that allow for them to deal with all of the many financial obstacles they may come across. Paying salaries, buying supplies, purchasing inventory–without a healthy cash flow all of this is if not impossible, extremely difficult.

A good cash flow–a product of managing cash flow well–ensures that you’ll not only be able to pay the recurring and day-to-day expenses but also the paying vendors, bills, and the myriad other payments a business must make on time. In addition to paying on time, you’ll also have enough money on hand to stay in the black.

Cash flow management allows a business to have visibility and control over their cash flow. The ability to see and understand the past and present of your financial situation creates the ability to analyze and predict trends that may affect your cash flow going forward. Preparation is key to any successful business, and proper cash flow management goes a long ways towards ensuring you are prepared for what comes next.

But again, keeping a healthy cash flow is only possible when cash flow management is taken seriously. While cash flow management can seem overwhelming, next we’ll discuss cash flow management strategies, show some examples of poor cash flow management and walk you through an actual cash flow statement example.

Cash flow management strategies

Business cash flow management isn’t always simple, but with a few easy-to-apply cash flow management strategies, it’s definitely manageable.

1. Pay your bills with your cash flow in mind

If you have a limited amount of cash flow, you need to be strategic about how you pay your bills. Cash flow management for business allows you to see your cash flow from a high enough vantage point that you can prioritize and schedule payments so the most pressing bills get paid first and the less important bills are paid when your cash flow is robust enough to handle the extra financial burden.

2. Get paid quickly

There are a variety of ways to encourage your customers to pay their invoices quickly. And when your customers are paying their invoices at a faster clip, it means that cash flow for your business stays healthier more consistently. A few ways to ensure a robust cash flow for business are:

• Provide a wide variety of payment options–credit, debit, online, mobile, etc.–for your customers. The more ways they can pay, the easier it’ll be for them to pay.
• Advertise discounts for early payments. Incentivizing rewards for early payments is a fantastic way to get your customers to pay faster.

3. Upgrade the technology you use to pay and get paid

Cash flow management for business is no longer rooted in the past. Advances in financial technology have made business cash flow management easier and more convenient than ever before. From accepting payments online to paying bills from your phone to using software that manages, tracks, and gives you control over your cash flow for business, the future has arrived in fintech. Here’s a few cash flow management software tools currently available:

• Quickbooks
• NetSuite
• Kyriba
• Jirav
• Plastiq

4. Get better payment terms from your vendors

If you maintain strong relationships with your vendors–another benefit of a healthy cash flow for business–they should be amicable to helping create better payment terms. An extension of your payments could help you manage other payments that, for the time being, are more crucial to the success of your business. Quality cash flow management allows you better understand your cash flow for business needs and positions you to better negotiate and schedule your payments with helpful vendors.

5. Extend your due dates

If cash flow management is one of your business priorities then you’ll have a solid understanding of when bills need to be paid. Knowing this information allows you to better plan so you can use a payment extension strategy (i.e credit card) to extend your due dates so you can maintain a healthy cash flow in your business.

Examples of poor cash flow management

82% of all businesses struggle to lift off because of cash management problems. To help you better understand the importance of business cash flow management, we want to showcase a handful of examples of poor cash flow management.

1. Growing too fast

In an interview with Entrepreneur.com, Chairman of Palo Alto Software, Tim Berry, discussed how expanding too quickly can lead to massive cash flow and cash flow management for small business problems. “Yes, of course you want to grow; we all want to grow our businesses. But be careful because growth costs cash. It’s a matter of working capital. The faster you grow, the more financing you need.”

2. Not creating a budget for your cash flow

A cash flow budget is one of many sound cash flow strategies. It’s an estimate of the cash you’ll need coming in and going out to run your business. When you don’t use a cash flow budget you can lose track of where your money is and where it’s going and this can quickly lead to big-time cash flow issues.

3. Getting paid too slowly

You can’t have a robust cash flow if you aren’t getting paid quickly enough. Cash flow for business rests on money coming in and, if it’s coming in too slowly, you won’t have the funds you need when you need them.

4. Thinking you’re going be successful too quickly

Fast growth can be an issue, as expectations that aren’t realistic can quickly bottleneck your finances. A survey from Kabbage found that 84% of businesses aren’t financially successful until 4 years of operation. Meaning if your cash flow is dependent on the belief that you’ll be instantaneously successful, business cash flow management becomes a lot trickier, a lot faster.

Cash flow statement example

As you can see, there are quite a few examples of poor cash flow management but nearly as many cash flow management strategies to implement in your business to avoid cash flow issues. One of the most helpful tools of cash flow management is the cash flow statement. A cash flow statement is simply a regular financial statement that identifies how much cash on hand you have for a specific period of time. It allows you to see how much cash you actually have on hand so you can have a better idea of your business cash flow.

Cash flow statements show your liquidity (how much cash you have on hand to actually pay for things), the changes to your assets, liabilities and equity (how well your business is actually doing), and trends within your business so you can better analyze your cash flow and create cash flow strategies.

Here’s an example of a cash flow statement for a small business so you can see just how much information is provided and imagine how helpful it might be in creating cash flow management strategies.

4 cash flow management business tips

To further help you get started perfecting your cash flow management, here are 4 quick cash flow management tips.

1. Use a business credit card

Using a business credit card to pay for day-to-day expenses allows a business to free up cash to spend on other, more pressing, expenses. Furthermore, using a credit card to pay expenses allows you to reap the benefits–credit card points, early payment discounts, etc.

2. Do a cash flow projection

A cash flow projection lets you see possible bumps in the road going further. Use this information to plan your payment schedule.

3. Grab a line of credit when you need one

Big expenses can come up quickly. Instead of draining your cash reserves, reach out to a bank, or another form of credit provider, for a loan.

4. Have an emergency cash reserve

Owning a business can be a roller coaster and you need to be prepared for the good as well as the bad. One way to do this is to keep an emergency cash reserve on hand so that when the chips are down, you’re still able to pay your bills.

Cash flow management is an absolutely crucial part of any business, wherever they might be in their journey. Though managing your cash flow can be a challenge, we hope that with these cash flow management business tips and cash flow management strategies, you’ll be able to continue to grow your thriving business.

Plastiq makes cash flow management easy for your business.