EP190 How to improve your cash management

[Financial Management Series]

Cash flow is the lifeblood of any small business. Even profitable companies can fail if they run out of cash. Strong cash management means knowing exactly how money moves in and out of your business—and making proactive decisions to keep it healthy. Here’s how small business owners can improve their cash management:

1. Understand Your Cash Flow

Start by tracking every inflow (sales, loans, investments) and outflow (rent, payroll, inventory, taxes). Use cash flow statements or software tools to monitor patterns monthly, weekly, or even daily. Knowing your cash position in real time prevents surprises.

2. Forecast Regularly

Create a simple 3–6 month cash flow forecast. Factor in expected sales, upcoming expenses, and seasonal changes. This gives you a forward-looking view and helps you prepare for shortfalls or plan investments wisely.

3. Speed Up Receivables

Slow-paying customers can choke your cash flow. Encourage faster payments by:

• Invoicing promptly and accurately
• Offering early payment discounts
• Using digital payment tools
• Following up consistently on overdue accounts

You might also consider setting stricter payment terms for new clients.

4. Control Expenses Carefully

Review your fixed and variable costs regularly. Cut unnecessary spending, negotiate with suppliers, and delay non-essential purchases when cash is tight. Even small savings add up over time.

5. Build a Cash Reserve

Set aside a portion of your profits as a buffer—ideally enough to cover 2–3 months of operating expenses. This gives you breathing room when sales dip or unexpected costs arise.

6. Time Payments Strategically

Where possible, schedule outgoing payments close to their due dates to keep cash longer. Spread large expenses over time or negotiate better terms with vendors to improve timing and cash availability.

7. Use Financing Wisely

Access to credit (like lines of credit or short-term loans) can help manage seasonal dips or bridge cash gaps—but only if used strategically. Avoid over-reliance, and always understand the costs and repayment terms.

8. Monitor Inventory Closely

Too much inventory ties up cash. Track inventory turnover and avoid over-ordering. Consider just-in-time inventory strategies to improve efficiency and reduce storage costs.

9. Review Financials Monthly

Make time to review your cash flow, income statement, and balance sheet monthly. This keeps you connected to the financial health of your business and enables better decisions.

10. Work with a Professional

An accountant or financial advisor can help you identify cash flow issues early and suggest improvements. Even a few hours of expert advice can save you money and stress down the line.

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Conclusion

Good cash management doesn’t require complex tools—it requires discipline, visibility, and proactive habits. For small business owners, mastering cash flow means more control, less stress, and a stronger foundation for growth.

Would you like a free template for a simple cash flow forecast spreadsheet?