For small businesses, successfully managing cash flow can mean the difference between stagnation and growth.
Cash flow management—tracking the movement of money in and out of your business—can be one of the most challenging aspects of running a business. Successfully managing cash flow involves balancing short-term needs against long-term plans, and accounting for irregularities in inflow and outflow. For small businesses aiming to expand and grow, cash flow management can be especially tricky.
It should come as no surprise that 60% of small business owners around the world say cash flow has been a problem for their business at some point, according to a recent survey. Of those, about three-quarters say that cash flow problems are among the top three causes of stress.
Cash flow problems don’t just create headaches for business owners—they also have major consequences that could significantly impact the overall health of your business. These include:
- Negative impact on growth
- Inability to take on new projects
- Missed opportunities for capital investments
- Inability to cover payroll
- Inability to offer employee raises
- Damage to supplier relationships
The good news is that there are a variety of tools and tactics you can use to help you better manage your business’s never-ending cash flow challenge.
1. Look for patterns and trends to help you forecast
As small businesses begin to grow, cash management often becomes more complex, catching many business owners off guard. Among business owners who experienced cash flow problems, 44% said these problems came as a surprise.
Bookkeeping software programs that offer historical tracking capabilities can help you identify patterns and avoid running into sudden difficulties. You can use these tools to look back over the year to detect sales spikes and dips, contract and payment patterns and other cyclical cash flow issues.
Seasonality—predictable variations in sales throughout the course of the year—affects a wide variety of small businesses. Landscaping companies do more business in the warmer months, and accounting firms get inundated around tax time, to take two well-known examples.