What are the most common cash flow strategies?
Keeping up a healthy cash flow is one of the most difficult aspects of running a small-medium sized business. Across the U.S., even companies that have strong profits and sales struggle day to day in managing cash flows.
While managing cash flow will always be one of the most difficult parts of running your business, there are a few common strategies to minimize risk.
Setup a Cash Reserve
As you run your business and collect on profits it’s important to establish a cash reserve. As business owners collect on invoices or retail sales, it is prudent to establish an interest-bearing account that could be helpful in managing difficult months or quarters. It’s valuable to evaluate your receivables and determine a percentage of monthly profits to withdraw for future downturns.
Maintain a short term & long-term budget
By evaluating your cash flows, you should find historical results to base your budgeting on. Your balance sheet provides a good picture of where your finances stand at any given time. As you manage and measure cash flows, it’s important to establish a forecast of what is expected to occur with sales in the upcoming months and quarters.
A short-term forecast will provide valuable insight into how much working capital you may have in the upcoming months.
Consider alternative financing for more working capital.
Many companies even with strong sales struggle to manage day-to-day cash flows. Over the course of their lifecycle, most businesses will in time seek some type of financing to operate more efficiently or reach new growth objectives.
There are many forms of financing a company can choose from. With traditional lending, creditworthiness will be highly scrutinized when applying for small business loans, business credit cards and lines of credit. A business that has good sales but may not have the best credit can consider alternative financing options that base funding amounts more on revenues, then credit.
An injection of working capital for many types of businesses can be a boon to fulfill more purchase orders, open a larger facility or order more equipment!