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Strategies to Manage Cash Flow and Keep Your Business Out of Debt

Strategies to Manage Cash Flow and Keep Your Business Out of Debt

June 15, 2023

Most small business owners cite cash flow as their biggest source of stress. It’s the number one reason that small businesses fail. According to a study by U.S. Bank, 82% of small businesses don’t make it because of cash flow management.

Surprisingly, a successful business is about more than profitability. Unless you master the delicate balance between earning and spending – making smart investments with cash on hand and ensuring you have enough money for short-term needs – your business might learn the importance of cash flow management the hard way.

While several factors are outside of business owners’ control, there are some things you can do to manage your cash flow to not only stay out of debt, but also to put your cash to work for you.

Understand your cash cycle. You should always know what happened last month with your cash and what expenses are coming this month. And understand that more sales don’t always equal better cash flow – because sales require expenses. When one increases, so does the other. The more you understand your business’s cycle, the more prepared you can be to get ahead of issues.

Have a weekly cash forecast. Create a forecast that stretches 13 weeks to understand inflow and outflow. What bills do you owe? What payroll expenses will you incur? By looking ahead a few months – and keeping tabs on the forecast every week – you’ll see problems coming and will have more time to manage them. 

Keep cash in reserve. Could you keep your business open if sales slowed down for three months? What about a year? The pandemic taught us how quickly consumer behavior could change, and countless small businesses shuttered in 2020 and 2021. Economic recovery has been slow, and owning a business now is trickier than ever. If your cash would run out in a matter of months, consider growing your reserves by slowing business growth and optimizing your expenses.

Make payments strategically. Don’t let go of your cash before you have to and avoid paying bills all at once. This protects your cash, so you can ensure you have enough to manage through the month. Pay your most important bills first and stagger the rest throughout the month. Don’t be afraid to pay just before a bill is due – but protect your credit and don’t pay late.

Be conservative with expenses and sales projections. It goes without saying that the more you can lower your expenses, the more cash you will have. Reduce your spending as much as possible. When developing sales projections, consider the minimum total sales that you need to manage expenses. If something goes wrong and sales dip, you’ll already be prepared for that scenario.

Hire an accountant. Cash flow problems don’t always appear immediately. Most accumulate slowly over time, while the business owner is focused on managing operations and talent. An accountant will proactively look at your finances and should see obstacles coming before they arise. They’ll also help you plan for taxes – something that should happen year round and not just in the spring.

Put your cash to work. If your business has a steady positive cash flow, and you find yourself with cash left over after expenses are paid, make sure that cash is working for you through investments. At Wealthspring, our integrated team of certified public accountants and wealth management advisors will work together to provide tax-optimized investment strategies to help you reach your financial goals.

Contact us to learn how Wealthspring Financial Partners can work with your business to develop purposeful, deliberate financial strategies and protect the future of your company.



U.S. Bank study: