Cash Flow Management Checklist for Businesses

Regardless of scale in business, financial management is important. Cash is indeed the king.

For the business, cash flow is required to keep the business growing. It’s important for the running and survival of the business.

According to the US Banks study, 82% of small businesses require to close due to issues in their cash flow. 

For business, proper cash flow is bloodline. From growth to launching a new product, you need a cash flow that can help in keeping the process hassle-free. 

To make sure you have effective cash flow management, here is what you are going to need. 

cashflow management checklist

Why Small Businesses Should Manage Their Cash Flow?

Small businesses require cash to make sure they are meeting their daily procedures along with taking the steps toward growth in their industry. 

Not having proper funds can cause disturbance or worse you can end up in heavy debts. To not face such a situation along with having control over the cash, you are going to need cash flow management. 

importance having cashflow in business

To understand how this can help, here are a few points that can explain. 

Manage Your Plans & Take Better Decisions 

When you have an accurate manager and understanding of your cash flows, you can know the exact amount of the funds available at any time.

This can help you in taking better decisions and also making better plans. With this, you will have the information you need with ist accuracy. 

Not managing your cash flow also leads to errors and risks when you make the decisions and plans for your business. 

Also, it helps in understanding where your business stands. Having a cash flow statement will tell you whether your business is in a strong position or not.

Having an updated statement in your hand, you can take a better understanding of how to make plans and take significant purchases for your business. 

Track Where Your Money Is Going 

The business includes lots of transactions. The money you spend is important to track, it’s not just for understanding where it’s going but also to know if it’s for reasonable reasons or not. 

Having an understanding of the money and its transactions can help you in cutting your extra or not that needed costs. You can find loopholes that are wasting your money and causing you effects on another important part. 

In business, you need a strong amount of capital to make sure everything is going smoothly. Having loopholes can cause you to spend money on things that are not needed.

Also is different from a profit & loss statement. With cash flow management, you can control the spending and direct it to better growth in business. 

Keep Your Business Relationship Safe 

Funding problems can cause issues like you might not be able to pay the suppliers. Having problems with cash flow can damage your reputation. 

Also, it can cause a disturbance in another field which leads to an unmotivated atmosphere. To make sure you are not facing this, you are going to need cash flow management. 

With this, you don’t have to manage different cash bills and invoices at the same time. You can set advance payments and make sure everyone is getting paid on their decided dates.

Find Right Time To Expand

The sign of growth is when the business starts to expand. It excites and motivates your employees as well as you to keep doing their best.

When a business has a smooth cash flow, you can find the right time to expand. Targeting a new market, hiring new employees means getting better revenue for the business. 

However not understanding when to expand can affect the business negatively and it can be for a long time too.

When you decide to expand your business it means you are going to need a more steady cash flow for it. Hiring new people, updating the working system, and making sure that your business is ready for new business requires funds.

If you don’t have it,  it will disturb the growth process and you might run up with cash that leads to closing the business. 

ways keep cash flow effective

Checklist For Effecting And Smooth Cash Flow Management 

The goal of any business is to make sure that they have more income instead of spending. 

Cash is important, and it’s needed in every action you take towards business growth. When you have a healthy cash flow, it shows that your business is well protected and going in a positive direction. 

tips to manage your cashflow

To make sure that you have smooth and effective cash flow management, here are the checklist you can follow- 

Managing The Cash Cycles 

Keep The Cash Cycles Short 

Short cash cycles are good when it comes to reserving the cash. It keeps your business smoothly going and assures you in a moment of doubt. 

When you have longer cash cycles, it means your business is going to run without money for a long period. Not just it delays the payment of creditors but also turns risky for the business. 

It’s important to keep the cash with you as soon as it can. That means, shortening your cash cycles. 

Do not wait for the end dates to pay the bills or make the invoices. Make sure the burden is less on your shoulder so you understand where the money you are going to give and from where you are going to get. 

Pro Tip: Encourage advance payments. Also, add online and mobile payments to help your customers in paying fast.

Also, you can change the length of your cash cycles depending on the situation, for example offering discounts, etc. 

Keep The Systems Updated & Ready 

During the period of invoicing, this point becomes more crucial. Not having a proper and clear system can do delays and create a hassle. 

Here instead of spending on an ad hoc system, make sure that your invoicing process is clear and easy to follow.

The process and system should be geared up to ensuring that you can keep more cash with you.

Take the time to the pointers which can work even if you tighten up a little. 

For example, consider your payment terms. How are you following the debt collection process that is easy and effective for you? 

Do your customers have easy paying options like PayPal, credit cards, or mobile making? 

Do A lot Of Credit Checks 

A small business needs its payment on time. If you are not getting it, it will weigh up the regular process which means more hassles in the future. 

Having tons of late or non-payers can negatively affect your cash flow situation. To make sure that you don’t have debt like situations, always run credit checks.

Especially when you are expending the credit to any customer. You should know if your business can deal with one more late payer or not.

Pro Tip: Not just that, understand if your customer has a good track record of paying back on time or not. With this, you can reduce the numbers and keep your cash flow safe

Renegotiate The Terms With Your Suppliers 

The benefit of having good terms with your suppliers will likely let you in negotiating the payment terms.

It’s important and beneficial for the business, with this you can get money to save. Also when you have good relationships with suppliers, you can use it for getting your credit extended in case of problems. 

Pro Tip: When you have a good rapport, you can get the information about the latest or upcoming discounts directly from your suppliers. Or in case, they can make it one for you. 

Managing Business’ Working Capital 

Understand How Business Cycle Works 

The business cycle means the time that your company takes to manufacture a product to sell it. It includes receiving payment and getting credit in your account. The whole cycle keeps repeating to make sure your business runs smoothly. 

If the process is longer, you are going to need more capital and it depends on how long you wait for the payment. 

why understand business cycle

When you are deciding the capital, it will also require you to understand what kind of business cycle you are running. Different businesses have their set cycles. 

For example, if you have an apple farm, it depends on the seasonal cycle. Here you are going to need enough money for harvesting and packing the fruits to deliver. And it will be even before you consider the returns.

But if you run a hairdressing business, you are going to need capital for daily work. In this business, you are going to do payments too often and track the money bills.

Reduce The Need For Working Capital 

When you are doing business, understanding the requirement of your working capital is important. Here the less you need, the better you can work.

Also when you start looking, you will always find conditions where the cost-cutting can be possible.  You can avoid large sums of in-person withdrawals. Along with carefully to do over-trading. 

Pro Tip: keep the inventory cost reduced as well as offering the easier option in payment for your customers. 

Do Conduct A Forecast 

Conducting a cash flow forecast can help you in understanding better your financial situation.

Instead of doing it in some time gapes,  add this forecast or everyday purpose. When you do it regularly, you can get a clear picture of your cash flow.

tips improving cash flow forecast

This will give you much more accurate forecasts, and you can take better steps to improve the situation in the working capital. 

Also, it helps you in predicting the short term finance for making them fill the gaps. It will keep you in control to increase your revenue stream to get better investments. 

The Working Capital Ratio 

Considering your working capital ratio shows the ability of your business in meeting the short-term liabilities.  It considers the current as well as more liquid assets.

To assess the working or current capital ratio, you require to divide the current asset by your current liabilities.

Pro Tip: If your answer is lower than 1:1.Then your working capital has a problem and it’s time to get help from a professional. 

Managing The OverTrading Risks 

Focus On Core Business 

For that business that just started, you need to avoid the temptation of handing everything to increase the flow in cash.

This requires skills and you will learn eventually, but focusing on early learning can depart you from what you are doing right now. 

Pro Tip: Devoting too much time to this can increase the risk for the core business. And to avoid the core business because of this can make it harder to suffer. 

Not All Business Is Good

A business proposition at first glance might look impossible to miss the opportunity. But remember the point that not all business is good for your business. 

Sometimes it comes with a huge burden that can be more damaging to your resources and business. 

For example,  consider the situation of shipping the samples of order 20,000 units.  To complete this and meet the deadlines, you are going to increase production. It will require investment in machines and staff that risks more to your resources. 

The problem accelerates when the order gets more in the future. 

Well, it’s not a problem when you have control over it. But here  you must know how to do it before you take the opportunity just for the sake of the opportunity, 

Recognize The Signs Of Overtrading 

As it’s earlier said, not all businesses are good. Sometimes you have to drop the business just because it’s showing you the signs of overtrading. 

The temptation of getting more work can push to take the risk of overtrading. For any business, until you have the backup ready to manage the extra work,  don’t get overtrading. 

signs you are doing overtrading

When you have the overtrading, it can give a huge gap to your financial resources and getting paid.

This means you are going to wait longer for paying the bills and staff. This is not good and also you can get the other coast overheads.

Also, it gets affected when you don’t have the cash flow forecast ready for your business.

Managing  The Debt 

Keep The Bills On Top 

As you want to receive payment on time, the same goes for your suppliers. You are going to pay the bills on time.

When you do the payment on time, it means your balance sheet will be updated and always accurate. 

Also, it tells you the clear position of how much money you want and has in hand right now. 

You will also have an accurate picture of the overall cash flow in your business. 

When you leave the bills, you might not understand how much money you need to pay and how much you have actually for yourself. 

Pro Tip: Paying on time keeps the relationship with your suppliers healthy. Also, you create your image and are responsible and amenable. It helps in getting future benefits too. 

Keep the Communication Line Open 

Miscommunication is common but it should be avoided at all costs. When you have customers who are not yet paid, it’s common to jump to conclusions. 

But avoid such a situation, contact with your communication and ask about it. Make sure you are polite yet firm.

It’s cash and for our business you need it.  Maybe your customs want to pay back but there is a certain situation. 

You can offer a repayment plan to divide the payment into installments. Your customer will like it and you will get your payment too without losing customers.

Also, keep the process and record the correspondence you did. It will be helpful for future evidence in worse situations. 

Keep The System Efficient 

When you have a good and efficient process established, the chances of chasing every debater to pay you back will be reduced. 

Focus on the record of debts. Avoid letting the debt become too old as the longer it’s unnoticed, the more difficult the situation will be to retrieve. 

Also, avoid the situation of large debts, ask for the pre-pay installment or deposits However it can be normal. 

Pro Tip: To make sure you are not dealing with a bad record, do the credit history check. It will help you in understanding that they can pay you back as they said or not. 

Get Help From Others 

Collectie service can help you in getting the debts back. If you are doing it your own and you are not getting the results, it’s a good option to choose the collective services.

The collective service is an expert in such things. And they can help you in getting your money back.

However, make sure it’s not disobeying any kind of rules. 

Collect The Debt Fast 

The debt gets hard to retrieve when it gets old. The golden rule says that you need to get it fast.  The faster you do, the better the whole process for you. 

It’s important to have the skills to get the money others to owe you back. Also need to handle the people without making it too big or worse taking it to court.

The better situation you can do in case of handling or approaching them personally. But keep it professional instead of getting overwhelmed about this. 

Pro Tip: Also, show the emphasis that you understand but also you need cash to run your business. Also, the money they owed requires you to operate your work. 

Managing The Extra Cash 

Get The Cash Reserve 

The business faces the situation when the cash goes down and up. Also, its revenue streams can swing in a different direction. 

Conducting the forecast can help you in getting the exact points where you might need cash deficits and surpluses.  

You can see the situation and make sure you are already ready for it.  You can also keep the amount ready for emergency cases for coping with unexpected situations.

You can allocate the extra cash on spending on assets without getting more loans or investment from a third party. 

Pay The Debt Off 

The debt is an important part that you need to short out as soon as you can. For any business, having debt is not a good sign. Especially when you have lots of it. 

Depending on the extra cash you have, you can get the debt pay off. Also, you can pay the debt on time and before the credit terms expire as well as start again. So it adds the penalty which costs more money to pay. 

Pro Tip: If you have extra cash, get the debts out of your cash flow. Make sure you are completing it before they expire. 

Update The Technology 

Technology is better to keep your work hassle-free. The more understanding you have, the better work you can do. But not having updated technology can cause problems too and delay work. 

Having updated technology can keep your work streamlined.

For example, you can spend on mobile payment options. It gives many options for your customer to pay their money and keep it hassle-free. 

It also reduces the situation of debt and keeps it faster.  Also, it gives a major boost to your credibility and keeps the cash flow good.

Pro Tip: If you keep the payment technology latest and updated. Make sure you are upgrading the system as well. 

Make Your Training Course Advance 

As your business starts to expand, you are going to need to invest in your staff too.  It’s important that you have the staff’s expertise on what they are doing. 

If you are introducing new services and products, make sure that your staff is well trained and ready for the big events. 

Look for the educational training and aside from in house training, you can offer more to their business. 

Pro Tip: The more advanced you have the training, the better you have for the future. The trained staff can help you in making better communication and customer relationships. 

Look For Investments 

The flexibility in investments can help you in getting your cash flow steady for the future.  With the investments, you can get new ideas,  spend more on better time souring to allow new customers. 

Also, you can invest in new products,  better sales equipment, and invest more in business. This will keep more cash ready for the work later.

Pro Tip: Aside from your own business, you can do the investment on others. Consider your employee or other options available. 

Manage The Cash Flow Forecasts

Keep The Accurate Figures 

The figures should be accurate, however, it will need more time investment and make sure to close to the possible numbers. 

This will help in getting the forecasts ready as it focuses on reviewing your finances and banks.  Keep the detailed version and write notes to the assumption you have for the forecast.

Keep your market research and sales story solid as well as accurate to project a better solution. 

Pro Tip: Consider the peak seasons as well. Since the sales are not consistent all the years. 

Estimate The Overall Cost 

Estimating costs include different aspects. Well, it includes payrolls, suppliers, overheads, and salary.

This should be as realistic as it can be. Also, you are covering the personal living cost or you are using it for the business. 

For both reasons, you are going to need to estimate the cost to get an accurate result. 

Forecast The Sales 

Understanding the sales, and finding a constructive sales forecast that can be accurate. It needs viewing the spreadsheet and accounting software for over 2 years. Also to get more confident, you are getting 12 months of sales. 

For any situation, you are going to need more understanding. It also needs to follow the work progress to get the competitive marketplace idea. 

Estimate The Capacity 

If you have a certain cash flow estimated for the month. Understanding how much you can easily or harder it will take to achieve it. 

There are limited hours but as a business owner, you are going to need lots of work to handle. It’s not easy for you to handle everything along with achieving the amount you are going to get paid. 

Improve The Accountant 

Having an accountant can solve lots of problems that you might be facing. They are professional, so they can handle the whole situation in a much better and effective way. 

Also, they can find the errors and pinpoint the situations that can cause risks to your cash forecast.  This can give you more accurate results especially to your forecast related to cash flow.

You can learn more about flow forecast and understand more about how to manage it. 

They are much better when it comes to spotting the disturbance or anything that you missed.

Pro Tip: Make sure you are equipped and have technology updated along with the accountant. It will keep your work much more hassle-free and fast. 

Manage The Assets: Choose Leasing Or Buying 

Pros  & Cons Of Buying 

You can do the buying for the long run as it’s much cheaper for that. Also, you get the asset for yourself.

With this you can sell it whenever you like, it also boosts the flow in cash.  Not just that you can use your products or purchased items as the collateral asset when you are looking to borrow money.

Such purchases have depreciation which works in your favor.

The con of buying is that it depends on the purchase. To do this, you are going to need the amount of cash and it will affect the reserves you have. This disturbed the cash flow

Pro Tip: You can consider leasing the bought equipment you have. It can help you in covering expenses and you can get the use of the cash to keep for important work.

Pros & Cons Of Leasin

Leasing saves money. If you need it, you can get the equipment on lease and use it while paying for a certain period. 

Also, it depends on what you are buying. If it’s expensive, leasing it can save money. Also if you are not using it for everyday purposes. 

You can keep it on-site when its need which will not affect the cash flow

The downside of leasing is you are not owning the equipment. You can’t use it for a collaborator or sell it later.

Frequently Asked Questions ( FAQ)

What is the purpose of cash flow management?

Cash flow management is a process that keeps track of your money. It keeps everything in a smooth flow from coming into going out. This helps predict the money available and expansion on the right project.

Why does a small business need cash flow management?

Small businesses need a grip on their money flow. The business needs to make sure that everything is streamlined especially the debts and cash. The more you have control, the better investment, and steps you can take. 

What to choose between leasing and buying options?

Leasing and buying both is good as well as bad in respective matters. It depends on the situation, for example, if you need equipment for the long run and going to use it, buying is a good option. However, if you need it for a certain period, leasing is a better option to save money.