No matter how successful the company, all businesses can experience a sudden cash shortage. Especially following the COVID-19 pandemic, business owners need to have an effective cash flow management strategy to stay afloat.

Cash management is the efficient collection, disbursement and investment of cash while maintaining its liquidity. Learn how to keep business funds flowing.

Understand Cash vs. Profit

Cash and profit are not one in the same. As money comes in and out of your business, cash is the amount of money readily available. Profit is what’s left over after all necessary expenses have been paid. The simple equation is Cash – Expenses = Profit.

Know Your Cash Budget

What’s your company’s cash position? A cash flow budget estimates the inflow and outflow of cash during a specified budget period. The main components of the budget are cash from your operating, investing and financing activities. Review your cash flow budget regularly to maintain an accurate picture of your current and future cash position.

Ways to Accelerate Cash Flow

A cash flow statement summarizes the amount of money entering and leaving a company. If your financial statement projects future negative cash flow, start with the following steps:

  • Reduce your spending
  • Avoid surplus inventory
  • Invoice accurately and on time to avoid payment delays
  • Offer early-pay discounts to customers who pay before their due date
  • Use an automated billing solution to send payment reminders
  • Invest excess cash back into your business to maximize returns

Manage Accounts Payable and Receivable

Accounts payable refers to the money you owe suppliers, while accounts receivable represents the money customers owe your business.

While you may be more focused on accounts receivable, it’s imperative to know when your own bills are due. Set reminders to avoid late payments and unnecessary fees. Monitor your spending and inventory levels to avoid the misuse of funds.

Have Separate Bank Accounts

Mixing personal and business funds can lead to disorganization. To monitor what’s incoming and outgoing from your business funds, open a separate bank account from your personal one. It’s also key to keep a small cash reserve to draw upon in the event of a cash shortage. Regularly add to these funds, so money is available when needed.

To learn more about business banking solutions, contact Ion Bank today!