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15 Cash Flow Management Tips for Small-Business Owners

From budgeting to billing, these 15 cash flow management tips can help you save money and survive tough financial times.
July 22, 2015

Often, when a popular business closes, the community is surprised. Why would such a promising business suddenly shut down? Too often, it has to do with not managing cash flow correctly.

Cash flow management can be critical to the success of any business. You can say I've been around the business block: I've had success, failure and everything in between. With my company Hostt, there was one point where we had to come up with $200,000 in three days to pay a bill that shouldn't have been due for several months. This scenario required us to get creative with money.

Here are a few cash flow management tips I paid attention to when launching my business and that I reevaluate each year. These have helped to keep my business alive during those times when we don't have cash on hand.

1. Create a Realistic Budget

Create a realistic budget according to your sales cycle, and monitor these figures at least once a month. You also want to take note of any variations, estimate incoming revenue and include discounts and payment terms you may offer to your customers. Also include expenses such as equipment maintenance and purchases of raw materials and other supplies. Salaries, taxes and operating expenses are other items that should be considered in a business budget. SCORE's mentoring service offers budget templates if you need additional assistance.

2. Have a Backup Plan

Always have a plan in place to handle any unexpected expenses, such as purchasing a new piece of equipment to handle production demand. You’ll also want to build up cash reserves for emergencies—for that recent purchase that just broke down, for example. It also wouldn’t hurt to establish a relationship with banks and business lenders by supplying them with operating statements from your business so they’re aware of your company’s stability if you need to apply for a loan.

3. Bill Clients on Time

Billing your clients on a timely basis will help maintain an incoming stream of revenue. Make sure you send out online invoices to the correct recipient immediately following a task or job through online services like Due (disclosure: I know the founder of Due personally) and Invoice Ninja. Offering a discount for quick payments is one way to motivate them to pay you as soon as possible.

4. Pay Creditors

Make timely payments to your creditors, and ask if they offer discounts for early payments or paying with cash so you can avoid any late payment charges. Also be sure to spread your expense payments throughout the month to maintain some cash on hand.

It's best to err on the side of not having to pay to borrow each month. Pay off all those pesky bills because they can eat you alive. Nothing can kill a business faster than unpaid bills.

5. Use Remote Deposit

Several banks will allow you to immediately deposit checks into your account by sending a digital image of the check through an app. This saves both time and money by reducing trips to the bank. It can also help you avoid fees if you're close to zero in your account.

6. Review Payroll System

Having a bimonthly payroll system can save money over a biweekly system. This is due to the fact that there are only 24 pay cycles per year in the bimonthly system, while biweekly systems have 26 cycles. Having two fewer pay cycles can save on taxes and processing costs.

7. Obtain a Business Credit Card

This can keep your business and personal finances separate, as well as establish a line of credit for your company. Having bad credit prevented me from getting a loan, which really put my business in a bind when things got tight. Don't make the same mistake; get credit early and grow it.

8. Require Employees to Use Direct Deposit

This can save the expense of printing and delivering employee paychecks, which can make things a lot easier in the long run.

9. Stay Current on What Your Customers Owe You

Require customers to pay upon service or receipt of goods. Stay informed on the invoice aging process so you can follow up with late payers and offer solutions to settle the amount due.

10. Keep Cash in an Interest-Bearing Account

This is assuming you have a lot of cash and you're making profit. Do not place funds into long-term CDs as you may incur fees for withdrawing funds before the maturity date. I was foolish and did this years ago; it ended up really hurting our profits. Transfer funds to cover payroll and other expenses immediately before they're needed to maximize your interest-earning potential.

11. Deposit Taxes Into a Separate Account

This practice can help ensure that funds are available to tax payments and help you avoid any penalties for late payments. I learned this from my accountant, and it's the best advice I've ever received.

12. Use a Payroll Service

This can save the expense of having an in-house payroll staff. It can also ensure that all payroll taxes are paid and recorded legally and in a timely fashion.

13. Be Conservative With Spending

For example, repair capital equipment instead of replacing and establish a maintenance schedule. If you must replace anything, consider purchasing good-quality used equipment.

14. Use the Barter System

Bartering for needed services and supplies can help you keep cash available for other needs. I try to barter for everything; I was once even able to barter for our entire hosting bandwidth for three years by just asking. This helped us get our hosting company off the ground and scale it like nothing else. Remember, if you don't ask, you will never get anything! I always ask.

15. Cover Processing Fees

If you accept credit cards for payment, raise the price of goods and services to cover the cost of processing fees. Also consider offering discounts for cash payments. Set the discount as equal to the credit card processing fee and perhaps offer a layaway plan for customers.

Peter Daisyme is the co-founder of Palo Alto, California-based Hosting Inc. and a member of Young Entrepreneur Council (YEC).

The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.

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