Five Small Business Cash Flow Management Tips

Cash flow can be key to the success of your small business. Here’s how to ensure your business remains cash-flow positive.

As a small business owner, the amount of cash you have on hand at any given time can affect your ability to pay employees and make ends meet. The term “cash flow” refers to the amount of cash and cash-like assets flowing in and out of your business, including incoming sales and outgoing operation expenses. According to the United States Small Business Association (SBA), it’s the “lifeblood” of a business and its operations. Mastering cash flow management can be critical to your success and business growth. Consider these five tips.

1. Understand How Cash Flow Affects Your Business

There’s a common misconception that cash flow and profitability go hand in hand. The reality is, having a positive cash flow does not always equal profitability. In order for your business to be profitable, your net income (your sales and other sources of revenue) must be greater than your expenses for a given period of time. Positive cash flow, on the other hand, simply means you have enough liquid capital to cover your daily business expenses. For instance, if you’ve received and delivered a large order but fail to receive your customer’s payment in a timely manner, your cash flow could briefly turn negative while your business remains profitable. Of course, it’s important to bear in mind that cash flow issues like these could affect your ability to pay your employees or suppliers, which could negatively impact your profitability.

2. Make Monthly Projections

One tip to ensure healthy cash flow management is to plan ahead by creating cash flow projections. Cash flow projections are estimations based on a number of factors, including customer payment history, future expenses and obligations, and vendor practices. Your cash flow projection should include the amount of cash you have on hand and the amount you expect to receive, less any fees, invoices, or taxes you’re expected to pay. The SBA suggests using a spreadsheet to keep track of all instances in which money is entering or leaving your business.

3. Remember that Timing is Everything

For most small businesses, cash flow will fluctuate daily, making it important for you to know when each debt is due and when your next influx of cash is expected. Review your payment dates and determine the best time of the month to pay your debts or collect on receivables. For instance, you might make sure that any client invoices are set to be paid one week before your credit card payment is due. Ultimately, careful scheduling can be crucial to your ability to maintain positive cash flow. By mapping out your month, you’ll know when to tighten your belt and when you can afford to relax.

4. Be Innovative

Think of clever ways to solve your cash problems that don’t involve spending more cash. For example, if you find that collecting payments is a problem, offer a discount or put a reward system in place to incentivize delinquent customers to make their payments on time. If you haven’t done so already, consider charging cancellation or hold fees on orders or services. Also, you may wish to consider regulating and updating your invoice system. By automating invoices, you can improve your overall recordkeeping, as well as improve financial accuracy and efficiency.

5. Start Small and Save as You Go

When just starting out, many small business owners overspend on things like supplies and software. While you may think you need them to be successful, do your best to keep things under control. Only purchase the necessities and keep staffing tight early on. It’s also a good idea to establish an emergency fund and set aside as much money as you can. If something goes awry, you’ll be happy you have another resource to dip into.

Whether you’re just starting out as a business owner or you have years of experience, remember that your cash flow management skills will grow over time. By putting in the work, keeping thorough records, and cutting costs wherever you can, you’ll likely to see financial success in the long run.

For more advice on how to maximize your cash flow, talk to a Regions banker about loan or line-of-credit solutions.


This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.