What Are Some of the Best Cash Flow Management Techniques?

Three small-business owners explain why cash flow management is integral to their businesses' success.
May 31, 2016

Small businesses are in economic recovery mode, but some might agree with me that it has been slower than anticipated. In an end-of-year survey, Wells Fargo reported that "only 39 percent of small-business owners experienced an increase in company revenues over the past 12 months. At the same time, 47 percent expected cash flow and revenues to increase in 2016." Given a still-far-from-ideal financial picture, we asked three small-business owners—Fritz Heffinger, founder and president of event marketing firm OutCold in Chicago;  Diana Goodwin, founder and CEO of AquaMobile Swim School in Toronto; and Shawn Schulze, CEO of SeniorCare.com in St. Louis, Missouri—what their cash flow management techniques are this year.

Why is cash flow management a critical skill for small-business owners?

Fritz Heffinger: It’s important to learn how your sales go—when your peak times are and when to expect a slowdown. In a perfect world, sales are steady all the time, but any small business knows that is not the case.

Diana Goodwin: Cash flow management is extremely important! You don't want to be stuck in a rut, unable to run a critical marketing campaign because you didn't properly manage your cash. Something like that could cripple your business and impact your sales for the coming year, putting your company in a downward spiral.

Shawn Schulze: When a business has cash on hand and cash reserves, it has much more control. Without available cash, a business relies on debt or new funding sources. Businesses that are operating day by day or have lots of debt are just one unexpected event away from desperation mode. In addition, interest on debt is a costly expense.

How, or where, did you learn to manage your cash flow?

Schulze: After over 10 years in business, I still have a fear of what may happen that could hurt our existing cash flow or require a large, unexpected expense. This fear is great motivation to ensure that we are conservative in our projections, in our expenditures and also in the amount of money we maintain on hand.

At the beginning of every year, I devise a cash flow plan and then set calendar reminders to review our various bank and Paypal accounts every two weeks to see if any money needs to be shifted.

—Diana Goodwin, founder, AquaMobile Swim School

Goodwin: My company AquaMobile is a seasonal business, so I knew right from the outset that cash flow management would be important. From there, I’ve just made sure I’m always aware of our current spending and future cash needs.

Heffinger: I wish I could say I read this book or had someone on staff, but it has been a trial by fire. I have had help from a good friend who works at a large bank, but our business is so unique that it was a risk in the beginning.

What mistakes have you made along the way that you’ve learned from?

Goodwin: When starting out, I didn't manage [my cash flow] other than being careful. Now I have a strategic plan that I continuously review and tweak.

Heffinger: The biggest mistake has been the age-old counting my chickens before they hatch. There is no sure thing ever, so don't start celebrating until the cash is in the bank!

Schulze: Early on, I was running some fairly expensive advertising campaigns that were pretty profitable, but I was also floating cash for the advertisers. Racking up large credit card bills to fund campaigns was very stressful. In addition, some of these campaigns would die overnight, essentially ending any momentum. This forced me to diversify revenue streams and prepare for the volatility of the online advertising world. I needed revenue diversification, cash reserves and to always be working on new revenue opportunities.

What are your best cash flow management techniques? What resources do you call on to help you stay on top of it?

Schulze: I'm old school. I use an Excel spreadsheet to track daily company revenue. I know exactly how much revenue our company earns each day and I can compare that to the prior month, prior year or many years ago. I'm also on top of our expenses. I know what they are and what to expect each month. Finally, we maintain the cash reserves with a custom company dashboard that tracks all of our company traffic stats, revenue, expenses, development tasks, etc.

Goodwin: At the beginning of every year, I devise a cash flow plan and then set calendar reminders to review our various bank and Paypal accounts every two weeks to see if any money needs to be shifted. Also, I'd recommend getting a line of credit with your bank for emergencies. You never know when it will come in handy!

Heffinger: The best system we use now is project coding. We match every dollar in and out to specific projects. We also have a great bank partner and CPA firm that fully understand and support what we do.

Read more articles on cash flow.

Photo: iStock