Cash Flow: 3 Steps for Small Business Owners

As a small business owner, you’ve got a lot on your plate. You have to juggle managing your business, growing it, and even working it. Then there’s life admin, family, self-care, that 10k you signed up for… Time and energy are taxed to the limit in the service of growing your small business. You juggle so many competing priorities, and when you’re feeling the pinch, one of the first things to slip can be that pesky, yet vital, cash flow tracker.

It’s one of the zillion things on your daily to-do list — and it should be. Right near the top. Because though it’s challenging to keep on top of it every day, slacking on cash flow can be a costly oversight. You’ve heard of the rubber balls and glass balls we all juggle? For your small business, cash flow is a glass ball. Consistently and effectively managing the inflow and outflow of your business’s money is the key to, well, staying in business.

If managing your cash flow as a small business owner has been a challenge for you, consider the following indicators that may hint you have a cash flow problem:

• Inability to make business purchases due to lack of cash

• Excessive amounts of short-term debt, such as accounts payable, taxes, or employee wages

• Struggling to make payment deadlines

• Outstanding receivables

• Excessive or obsolete inventory

If alarm bells are going off for you, read on for three steps that you can take to be more successful at managing your business’s cash flow:

1. Track Inflows v. Outflows

The names say it all. But for the sake of clarity, let’s define the two.

Inflow refers to money coming into your business — sales of products, services, or proceeds from a loan. Outflow refers to money going out — purchasing inventory, business expenses, or loan repayment. This inflow and outflow is an ongoing process, better known as cash flow. And you must keep track of it.

Simple, right? Sometimes.

Sometimes the stars align and the money coming in covers the money going out, maybe even with a little extra to reinvest in your business. However, most of the time, the timing of when money comes versus when it needs to go out can be one of the biggest challenges for small business owners.

This is where a cash flow statement comes into your strategy. Once you have one, you can compare, analyze the current state of your business’s cash flow, and make projections for the coming months and years.

2. Cash Flow Analysis

Once you’ve created your cash flow statement, it’s time to analyze the data to extract patterns and make meaningful decisions.

With inflow analytics, pay attention to credit and accounts receivable. Are you extending interest-free loans to customers? Should you? What’s your collection policy?

With outflows — staggering or rescheduling payments or reducing inventory can be helpful, especially during slower periods. Mismanaging either inflow or outflow can lead to negative cash flow, which can be catastrophic for a small business.

3. Preparing a Budget

Budgets aren’t just for personal finance. For small business owners, they are critical tools to stick to daily financial decisions and plan for growth.

Forecast your next year’s sales using a year-over-year comparison. Then forecast outflow: inventory, expenses, accounts payable, and loan payments. Be precise and consider current events and trends. Record-keeping is essential.

Work/Life Balance

Most business owners laugh at the very idea. But your finances can be just as tangled as your calendar. You may end up covering shortfalls from your personal savings or combining tax obligations. That’s why you need a financial plan that encompasses your business and personal goals.

Your financial planner should understand the unique needs of a small business owner — like cash flow access and viewing your business as a retirement asset. At NEST Financial, our planners offer comprehensive, customized plans tailored to the entrepreneur inside you.

If you’re ready to get your hands dirty and dig into your cash flow with a financial advisor who understands your needs as a small business owner, schedule a no-obligation call with ours.

At NEST Financial, our passion is helping small businesses thrive — in Austin, Hill Country, Texas, and beyond.

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DISCLAIMER: We are legally obligated to remind you that the information and opinions shared in this article are for educational purposes only and are not financial planning or investment advice. For guidance about your unique goals, drop us a line at info@nestfinancial.net.