Mastering Cash Flow


Small businesses operate with cash, so good cash flow management is critical to your success.

What is cash flow? It’s the movement of money into and out of your business. Well-managed cash flow ensures that the cash flowing into your business—your income—is more than the cash flowing out—your expenses.


Of course, it’s not always that simple. But making a cash flow budget will help you cover your expenses and prepare you for potential income shortfalls.


Here are a few things to keep in mind:


Start with the Basics: A Cash Flow Budget


Before you even begin making money or paying bills, make a cash flow budget, which projects your income and expenses. This will probably involve guesswork; do it anyway. If you don’t have a good idea of what your expenses are, you won’t know how much income you need.

Looking for help? Check with the Small Business Administration (SBA) or SCORE, a nonprofit that helps small business people solve problems. SCORE provides templates to help you get started.


Expect the Unexpected


Even the best projections can be upended by surprises beyond your control. Late-paying customers and vendors who demand large prepayments are the most common threats to your cash flow budget.


However, you can do things to minimize those threats. Bill your customers frequently and encourage them to pay early. Offer incentives for early payments. You can also set aside money every month, building a rainy-day fund to address any cash shortfalls.


On the flip side, manage your payables to keep cash as long as possible without paying your vendors late and incurring added expenses in late fees and interest. You want to keep your vendor relationships strong.


Seasonal Businesses: A Special Cash-Flow Challenge


Businesses that earn the bulk of their income during a short season—snow removal, ice-cream parlors, charter fishing, hotels and others—must manage their money differently.


Reserve Cash

Putting aside cash for the slow months is critical for seasonal businesses. We recommend setting up a separate savings account that you pay into regularly.


As a rule of thumb, the SBA recommends that you have three to six months of cash on hand at all times to cover your slow months and any unanticipated expenses.


What if I Run Short on Cash?


If you unexpectedly find yourself low on operating funds, Northern Initiatives may be able to help. Under certain circumstances, our loans can cover your short-term cash shortfall.

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