How to Manage Cash Flow Efficiently to Keep Your Business Operating Smoothly

Money makes the business world go round. There is no way around it; cash flow management is the lifeblood of every business. If you want to be able to expand, invest in innovation, and attract and retain the top talent in the industry, you need to manage your finances like a pro.

However, this is often easier said than done, given the sizable expenses every small business has to deal with on a monthly basis. Even though the 2018 Wells Fargo/Gallup Small Business Index found that the majority of business owners are satisfied with their cash flow, the topic still remains a pain point for many aspiring businesses worldwide. With that in mind, here are five tips to manage cash flow efficiently and keep your business operating smoothly.

Present a clear financial overview

In the financial realm, nobody likes surprises. There needs to be a steady upward trend in terms of revenue in order for the accountants and CFO to refrain from panicking, and the first step toward establishing this trend is having a clear overview of your financial landscape.

Needless to say, you should use smart accounting software for this purpose, but you also want to bring in the top financial talents in the industry to keep your books organised. Knowing how much money is coming into your company, and more importantly, how much you’re spending, is the essential prerequisite for a sound financial plan. Of course, this also means that every expense needs to be filed and reported in order for the financial report to be as detailed and actionable as possible.

Pay your bills one at a time

Speaking of expenses, many a small business owner makes the inadvertent mistake of dealing with all outstanding payments at the same time, in order to “get it over with as quickly as possible”. Unbeknownst to them, this might not be such a prudent idea.

Instead, you want to spread out your payments as much as possible, and organize them strategically so that you can safely cover all the expenses without finding yourself short of cash in the most crucial of moments – such as having to postpone a marketing campaign because of poor cash flow management. To avoid this, consider paying your bills closer to the due dates – this will allow you to cover expenses just as you get paid by your various clients or customers.

Direct revenue towards innovation

There is no better way to gain a competitive advantage with cashflow finance than to direct money towards growing your business. Instead of paying all your bills and monthly expenses first and leaving little for your innovation and development processes, make sure to devote a portion of your revenue to this purpose first.

This doesn’t necessarily mean expanding your business; rather it should mean driving innovation regarding your products and services in order to offer a better deal to your clients and customers than your competitors. Remember, investing in your own company will allow you to always stay one step ahead of the game, and maximise your revenue in the process.

Optimise payroll expenses for greater savings

To many business owners, payroll optimisation means letting people go in order to make greater financial savings. This should only be your last resort, as you need a strong, skillful, and a passionate employee collective to guide your brand towards greater goals in the near and far future.

Nevertheless, you need to figure out the ways to minimise payroll expenditure as a whole, and outsourcing might just be the solution. In the digital era, there is no reason why you shouldn’t acquire top talent in the industry from around the world, and create an online workforce. This can allow you to cut overheads, and pay less for stellar talent.

If you’re leading a brick-and-mortar business, on the other hand, you can look into the applicable wage laws in your region, and see if you can manage the payroll according to your business needs and processes. Some businesses such as restaurants can benefit from paying their employees on a weekly basis, but that usually isn’t the case for companies that don’t generate daily revenue – so paying your employees less frequently would be a sound financial decision.

Offer a number of payment methods to customers

No matter if you’re running an international company or a small local business, one of your priorities should be to collect payments from customers and clients as quickly as possible. As any entrepreneur with a couple of years of experience under their wings will tell you, this is usually easier said than done.

Instead of chasing  your customers and spamming them with phone calls and emails (do send them scheduled reminders, though), you want to offer them a variety of payment options and methods according to their financial capabilities. This way, you get what you’re owed, and your client remains solvent – it’s a win-win.

Cash flow management is one of the most important aspects of running a successful business in the competitive 21st-century market. By using cash flow finance to your advantage, you can efficiently and effectively keep ahead of the competition, and steadily pave the road to long-term success in the industry. Follow these five tips to oversee cash flow efficiently and keep your business working.

Written by Emma Worden