Having a steady, healthy cash flow is essential to running a successful small business. To achieve this, business owners must remain vigilant about controlling cash flow to prevent or minimize the effects of shortfalls.
Without a consistent cash flow, you’re at higher risk of missing sales opportunities or being unable to invest in inventory or supplies for a project. A new poll by Manta revealed that among small business owners who worry about cash flow, three-quarters have missed a sales or business opportunity as a result. Also, seasonal businesses have more cash flow management challenges as income can fluctuate dramatically throughout the year.
There are a few cash flow management techniques and tools you can utilize to better manage the money coming in and out of your business.
Anticipate future needs: Avoid surprises by regularly conducting a cash flow analysis. This process involves using historical financial records to help you make an educated guess about future payment and billing patterns. Read our blog post for an overview of how to conduct an analysis.
Build your small business’s credit score to be ready for financing needs: Keeping your business and personal finances separate is key to building your business credit score — you want to be able to take advantage of business financing when you need it. Using your personal finances will put your own assets and credit at stake rather than the assets and credit of the business.
Create strict invoice terms to protect cash flow: While you may send your invoices in a timely manner, your customers’ payment may not be as efficient. If 30 days turns to 60 or 90 days, you may have problems with cash flow when you need to pay your suppliers and other expenses. Consider paying a fee to use an invoice financing solution so that you are paid on time and a finance company then becomes responsible for any collection activities.
Use a business line of credit: You don’t want to miss an opportunity because you lack supplies or have other cash flow issues. A business line of credit can provide you with funds that help with short-term financing needs so that you can have the cash flow to complete a project without having to wait to get paid. Be sure that your future cash flow is sufficient to pay down the outstanding balance though.
Consider an asset-based loan: You may qualify for a lower interest rate and better financing terms if you qualify for an asset-based loan by pledging your collateral, whether that’s accounts receivable, inventory, equipment or other assets. These loans can be a great way to bridge the gap between sales and collection of receivables so that you have the resources to help your business grow.
Lakeland Bank offers a full range of business banking services including online services, business checking, savings and money market accounts, certificates of deposit, business loans, and cash management solutions. Our Customer Service Team can be reached at 866-224-1379.