In the world of business, the only thing that is certain is change. No one can be sure what the future holds for your market niche. Many times, product launch expenses are more than anticipated. New revenue streams may take longer than expected to generate and collect. Preparedness for what may happen is the secret to handling the challenges of having enough working capital in the uncertainty of the business. Ensuring your cash flow never runs out can give you more time to make changes for whatever the future holds. Cash flow helps boost the survivability of the business to pivot when needed.

The following cash-flow management strategies can help ensure that you have the cash flow needed for solid business funding:

1. Monitor your cash-flow statement.

Too many business owners only focus on the profit and loss statement. But one of the leading reasons why companies go out of business is that they simply run out of cash to pay their bills.

This is why it's critical to monitor your cash-flow statement monthly. (It's available on most accounting applications.) It will show if your business added or lost cash during the month.

Your cash-flow statement will also tell where your cash was spent during that period. A simple bank statement can also be used for this purpose by comparing the beginning and ending balances.

2. Build a cash reserve.

If your business sales shrink as a result of losing key customers, a new competitor or changing market conditions, it is important to have a reserve to support a solid cash-flow management plan.

This can be gradually built by having the bank automatically transfer 5-10 percent of cash balances to a separate reserve account. Depending on the historical revenue swings in your business, having a cash reserve of three operating months should be sufficient.

Others suggest building a much larger one, but I reason that if sales are cut by 50 percent, the company has a much larger issue than managing cash flow. Even with such a big drop, a three-month operating reserve could last for six months. This can help ensure that no matter what happens, you'll have the business funded at the level that it needs.

3. Get a bank line of credit.

If your company has a bank line of credit that is available to them, you may want to consider periodically borrowing from it so it does not get withdrawn.

Banks don't want to extend credit to companies that don't use it. One way to ensure it will be there is to borrow from it and repay the loan within terms—even if the cash flow is not needed now.

Business credit cards and the short-term loans that they provide can also be part of a supportive plan.

4. Monitor your days sales outstanding (DSO).

Your DSO is how long it takes for your customers on average to pay their invoices. The lower this number is, the more cash flow you will have.

When you pay your bills on time, periodically ask if your terms can get extended another week or more. The longer you have to pay these invoices, the more cash you can keep inside the company.

For example, if the average time it takes for customers to pay is now 60 days and you can cut it to 30 days, your company's cash flow will increase by 50 percent.

One way to cut the DSO is to send out invoices on time and follow up to ensure they are paid within terms.

5. Determine how often your inventory turns.

The more product you have in inventory, the more cash flow you have invested here that is not utilized by the other parts of the business. And the less time a product stays on your shelves, the less cash is tied up in that inventory.

Most accounting systems will report the aging of inventory. From here, you can figure how often a product is reordered annually (i.e., how often it turns or its turnover). The key is to only stock as much inventory to meet customer fill expectations, that is how often the product is in stock when it is wanted).

6. Ask for longer payment terms every six months.

When you pay your vendors on time, you may be more likely to get extended payment terms from that company.

When you pay your bills on time, periodically ask if your terms can get extended another week or more. The longer you have to pay these invoices, the more cash you can keep inside the company.

7. Challenge your basic business assumptions.

In the long run, more profit produces more cash flow. Explore how your company can increase its gross margin. Can it sell to customers at a lower cost? What parts of the business always make a profit, and how can you leverage it? Which are the most profitable customers? Explore cutting costs even if revenue hasn't gone down. In my companies, I've never regretted cutting costs too soon. The best growing businesses have a strong working capital and cash-flow management system for both good and bad times.

Read more articles on managing money.

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