6 Effective Cash Management Tips for Small Businesses

2. Accurate cash flow forecasting.

I realize that many small business owners may not actively forecast cash flow — money coming in, and money going out. But, if you have not been doing so, now is a good time to start.

Cash flow forecasts and variance analysis against actual should be performed on a monthly basis in order to identify improvement opportunities at the process level. Accuracy of cash flow forecast is important, because an error in your forecast may result in either additional credit being availed at high interest rates for working capital or a cash squeeze which prevents you from fulfilling a big order.

It is important to create awareness across your entire organization about the importance of cash flow forecasts and the responsibility of variance should be identified and held accountable. In your small business, do your employees understand the concept of cash flow? Do they know what their individual role is in the overall picture of your company? Accurate cash flow forecasting is a powerful tool which can help you make the right financial decisions.

3. Evaluating capital expenditure.

It is important to preserve the cash that your business generates. One way to do this is by slashing your capital expenditure.

While you’re in a growth phase, slashing capital expenditure may not always be feasible. However, you should perform your due diligence on expenses and ensure they are backed by a thorough return on investment (ROI) analysis.

Consult with your accountant or a financial advisor before you dole out a ton of cash for capital expenditures (i.e. new office space, upgrades for current systems, etc.).

For example: You may totally jazzed up that your Google Adwords PPC campaign is generating 15 inbound calls per day. Yet the campaign is costing you $60k per month. Your accountant may likely analyze the 15 calls, the subsequent conversions and compare it to your aggregate profitability and calculate the ROI as a loss.

4. Optimize your taxes.

Taxes shouldn’t become a major cash outflow item. If it is, take some time to consult with your accountant and evaluate your business structure, operational processes and accounting methods to identify ways you can optimize your tax outflows.

As entrepreneurs we love to do things ourselves, but the self-help accountancy practice of “QuickBooks and Quicken” aren’t going to advise you on the best ways to make sure your quarterly or monthly tax burden is being allocated to minimize your loss.