Cash flow keeps a business ticking day to day. For small businesses, it’s even more important because they don’t have big reserves to fall back on like the big companies. Cash flow isn’t just about how much money is coming in; it’s about making sure there’s enough on hand to pay bills, keep suppliers happy, and cover the basics like rent and wages.
Let’s look at a real example and look at practical, no-nonsense tips to keep cash flow healthy and steady.
Case Study: Sarah’s Struggling Boutique
Sarah is the owner of a small boutique in town. She has customers coming in, and consistent sales but she’s always short of cash. Suppliers are requesting payments, rent is due, and she doesn’t know how to resolve it.
Below are some key management tips:
- Cash Flow Basics
Perform regular check-ins (daily, weekly, or monthly) to manage cash flow.
If Sarah had looked at her cash flow each month, she might have caught issues early, rather than scrambling when things got tight.
- Set Up a Simple Cash Flow Forecast
Forecasting cash flow doesn’t need to be complicated. Make a basic forecast using a simple spreadsheet, listing expected income and expenses over the next few months.
For Sarah, just having a basic forecast made all the difference. She could see when big bills were coming up and make sure she had the cash set aside, so there were no nasty surprises.
- Encourage Faster Invoicing and Clear Payment Terms
Late payments can be a cash flow killer. It is important to invoice right after a sale or service. Tighten payment terms to get paid sooner.
Sarah used to give her customers 30 days to pay but switched to 14-day terms, with a small discount for early payments. It helped her cash flow almost immediately, and she didn’t need to chase payments as much.
- Review Monthly Expenses
Expenses can creep up without anyone noticing. A monthly review of all recurring costs – subscriptions, rent, supplies – and see if there’s anything that can be reduced or renegotiated.
Sarah saved a little each month by switching to a new payment provider with lower fees. It didn’t seem like much at first, but it added up over the year.
- Inventory Management
Product-based businesses should keep a close eye on the stock. Holding onto too much inventory ties up cash.
Sarah’s boutique carried a lot of stock, which hurt her cash flow. She tracked which items sold best and kept less of what didn’t move quickly.
- Build a Small Cash Reserve
Save a small percentage of income each month to build up a cash reserve. It might take time, but having a buffer helps handle surprise expenses without going into debt.
Sarah put away a little every month, and soon enough, she had a small emergency fund. It gave her peace of mind and helped her to avoid taking out expensive loans in tight months.
- Use Simple Technology for Tracking
Basic accounting software can automate invoicing, track expenses, and give a clear snapshot of a cash position.
- Control Credit Terms
Many small businesses are generous with credit, but this can seriously strain cash flow. Ask for deposits on large orders to keep cash flowing.
- Prioritise Payments When Cash is Tight
Sometimes, there just isn’t enough cash to go around. Wages, utilities, and key suppliers should be at the top of the list. If necessary, talk to suppliers and arrange payment terms to ease the pressure.
In Summary
Cash flow doesn’t need to be complicated, but it does need to be managed.
