Cash Flow Management for Small Businesses

Small businesses today must be extremely mindful about their cash position. If the last several months have taught us anything, it is has reminded us that the state of the economy can change quickly. While no one could have predicted the coronavirus pandemic, small businesses who have a strong handle on cash flow management were able to devise a plan much easier than those that did not.

Cash flow management is a critical aspect of any business, as net cash flow is the key to determining the financial health of an organization. In fact, research shows that poor cash flow management has been attributed to the large majority of business failures. A company that spends more money than it earns will suffer from a cash flow problem. While that may seem like a blatantly logical concept, small business across the country struggle with cash flow management.

A number of industries have been historically more prone to cash flow issues. Real estate development, for example, is often plagued with cash flow problems. The cyclical nature of that business means that cash flow is weak while a property is being developed. As such, it is typically critical that real estate developers sell some of all of the development before or during construction. Bankruptcy is an unfortunate outcome for a lot of real estate development firms who fall into negative cash flow.

Avoiding cash flow problems means taking active measures to manage your company’s financial health. Small business often take strategic action to keep cash flow positive, including things like:

  • Proactively seeking a business line of credit
  • Regularly monitoring cash flow
  • Selling unused assets
  • Leasing equipment where possible
  • Cutting costs where possible, often in places like payroll and utilities
  • Incorporate mobile payment options
  • Being diligent about invoicing
  • Requiring deposits on long-term, large contracts
  • Equity financing

No matter what method or methods chosen, small businesses must have a deep understanding of the state of their cash flow. Without proper cash flow management, small businesses run the risk of being blindsided by financial struggles. Far too many companies are late in identifying an issue. This leads to a hurried response and often makes it difficult to respond with strategy. As such, many small businesses look to an outside firm to handle their cash flow management.

It is critical to have a firm grasp of one’s financial situation; even the wealthy can experience times of strict cash flow. At Ellrich, Neal, Smith & Stohlman, P.A., our Family Services Practice offers personally-catered accounting solutions including bill payment, bookkeeping, invoicing, payroll management, and expense history.

We maintain detailed general ledgers and reconcile bank, brokerage, and investment accounts for cash flow analysis and projections. We can help you create, maintain, and modify budgets on a monthly, quarterly, and yearly basis to help achieve your goals. Working with us means approaching cash flow with strategy, mindfulness, and expertise. Contact our Miami or Palm Beach Gardens office today to speak with someone on our financial team.