Finance

Importance of Cash Flow Management for a Growing Small Business

Written by Mitchell Butler
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Compared to bigger counterparts, small businesses create better employment opportunities; hence they are necessary to keep the economy moving. In 2010, as per SBA.gov reports, small businesses accounted for 99.7% of U.S. employer firms and 64% of net new private-sector jobs.

Frankly speaking, small businesses are the backbone of the US economy. However, we have other reports from SBA that says that half of the new businesses fail even before they complete a year. From their recent study, in which, out of all the small businesses that started out in March 2016, only 79.8% made it to March 2017. According to CBInsights analysis, 29% accounted cash issues for their failure.

If we take a closer look at facts, cash provides sufficient opportunities for small business owners to create a niche for themselves. It is not enough if they have a good start. They should manage money so they can carry on with the same consistency.

To understand the benefits of cash management, study the points below.

1. Better Management of Accounts Payable

Accounts payable includes the checks you pay for vendors/supplies. You can even count the payroll. When business owners have a better cash flow management system, the outflow of cash does not impact the business working capital.

That means small business owners will be efficient in meeting day-to-day expenses as well as other financial obligations without having to seek additional financial assistance.

Also, paying early, small business owners can develop a better relationship with the vendors/suppliers. It’s a great advantage for the business, for it creates an opportunity to strike better credit terms in the future.

2. You Can Avoid High-Interest Loans

Now at some point in time, every business will face financial shortfalls. One of the first steps small business owners look into is taking loans. It’s easy to get money fast, but you will be paying high interests at the end of each month. It is unlikely small business will face any cash shortages when they have positive cash flow.

As a growing business, you would have more obligations, more expenses coming your way. You should work towards conserving funds. Paying high-interests will not help your business any way.

So, take this as an advice. When you are running a business, your focus should not be just the profit and sales, it should be maintaining positive cash flow.

3. You can invest in New Technology

How do you improve your value in the market? Or how do you make yourself integral to competition and business growth? Invest in innovation and technology.

That’s right. Small business owners who are looking forward to nurture their dreams should not shy away from investing in new technology.

However, they don’t necessarily have to take a loan or seek finances if there is good internal business cash flow. Being thorough and organized in finances is sufficient to fund their new ideas and ventures.

4. Take Benefit of Seasonal Business Trends

A lot of small business may experience slower periods during the seasonal business days where they should have been cashing in. The reason is cash deficiency and it can put all your future plans on the back burner.

If seasons influence the bottom line of your business, then you need to have a good cash cushion to brace for changes. Having good cash flow, you can stock up your inventory with seasonal products, hire new staff, and improve business revenue.

About the author

Mitchell Butler

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