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4 Tips for Better Business Cash Management

Ever find you don’t have enough cash to pay yourself the salary you deserve? Or perhaps your business is growing fast and your bank balance is skimming the red? Or maybe you simply find yourself worrying about how much cash you have from day to day? You need to think about your business cash management…

Thinking about and managing your short-term cash flow is hugely important, not just because your business will run smoother, but because it will help overcome nagging doubt and fear.

So here are 4 things you can do right now to improve your situation.

Start Building a Cash Buffer

What happens if sales drop? How long could you survive a downturn? It’s always a good idea to have a rainy day fund. Having a few months’ cash to get you through a rough patch is good practice for any business.

The amount you need will depend entirely on your business but by setting yourself a target, it will force you to think about how you can achieve it. Will you have to raise prices? Negotiate with your suppliers? Increase sales? Make your processes more efficient? Talk to your accountant about your best options…

Set budgets (and stick to them!)

Once created, budgets will make monitoring the health of your business so much easier and is the backbone of a cash flow forecast. It’s best practice to include everything. If you are time-pressed, just start out with the big numbers (eg/. sales, payroll, COGS, marketing, tax etc) and leave the small stuff for another time.

Remember! You are trying to predict when cash will move in and out of your account…not when you will book a sale or receive a bill.

Planning your cash inflows and outflows will show you the limitations that your business may encounter and will help you make informed decisions based on the cash that you will have available to you. The more realistic your budgets the better.

Collect Cash Sooner (and Pay Later)

business cash management

Evaluate your terms; looking both at the credit you give and the credit you are given. There are many things that can influence the terms you negotiate (eg/. being competitive or improving supplier relationships) but cash is a major consideration.

If you pay your suppliers before you get paid by customers, you will have a “cash gap” that you have to fund. For example, if I pay for $100 of raw materials on 1st of the month and a customer pays me $200 for the finished goods on 14th of the month, I will have been $100 out of pocket for two weeks. (And if the customer is late with their payment, then you are out of pocket even longer!).

Most businesses cover this gap either with a cash reserve or with a loan or invoice discounting. None of these options is hugely attractive…bank loans can be expensive, invoice discounting means you don’t get 100% of what you sold and the cash in a reserve could be invested if it wasn’t servicing ‘the gap’.

As you can see, making your cash gap shorter (or even negative) will give you much more control over your business!

Schedule Time to Monitor your Cash Flow

Managing your businesses cash is not a one-time thing. Checking in on your cash flow once a week is a fairly sound schedule to ensure you stay on top of things and this can be done more or less depending on the needs of your business.

But it’s important to schedule in time to do this so that you don’t let it slide. The future is a moving feast and things change quickly. But by implementing these four tips, you will be leaving a lot less to chance, you’ll have much more control over your business and you’ll probably sleep better too!

How should you build a cash flow forecast?

You could build a cash flow forecast in Excel – there are plenty of templates available through a quick Google search. However, these will be hard to maintain and can be very error-prone. A way to avoid that hassle is to use a tool like Float to connect to your accounting software and automatically import your accounting data every day, saving you heaps of time and letting you focus on your bit – entering an accurate forecast. You can sign up for a free trial here.


Rebecca Fowler

I'm a marketer and a lover of puns. Greggs fan ✌️