Business Plan Center

Strategies for business cash flow management

Set your business up for financial success with these cash flow management strategies.

It's easy to believe that your hard work and long hours will translate naturally into a healthy bottom line.

After all, if you're delivering quality work to reliable clients at a fair price, what's there to worry about?

Even thriving businesses are at risk if they manage cash flow poorly. Let's say you landed a $75,000 contract that doesn't pay for 90 days. If you have $20,000 in the bank and pay $15,000 in monthly expenses, you'll be in big trouble before 90 days is up.

Prevent problems like this and ensure your hard work pays off by creating a cash flow management plan that includes the following strategies.



Forecast your cash flow for the next three months

Cash flow forecasts can help you plan ahead and avoid trouble before it hits. These projections don't have to be perfect, but they should be educated predictions that can help you make smart financial decisions.1

Track your anticipated income and expenses, and be as specific as possible. In addition to recording outstanding customer invoices and the dates you expect to be paid, list obvious fixed expenses, such as rent and payroll, and individual project expenses.

Review and update your forecasts regularly

Schedule time every two weeks to return to your projections. Update them, track changes, and add new details. "It may just be 20 minutes [every two weeks]," says Jerry L. Mills, founder and CEO of B2B CFO, a consultancy firm that helps small businesses with cash management. But frequent revisions are critical because "every business is fluid, and there's always some new variable."

Monitor your burn rate carefully

Burn rate is your negative cash flow, or the amount you spend each month. If your burn rate is high, you'll eventually run out of cash. Avoid this by checking your cash flow statements carefully and monitoring each expense.

Create cash flow statements every month

The relationship between your cash on hand and burn rate is at the center of business cash flow management, and these elements come together in your cash flow statements. While your forecasts predict the inflows and outflows of cash, these statements document the actual amount of income you received and expenses you paid. You should create monthly cash flow statements if you run a new business. As your cash flow becomes more regular, you may need to track it less frequently.

Plan ahead for cash shortages

Cash flow will vary month to month or even week to week. This is especially relevant for seasonal businesses, whose revenues fluctuate throughout the year. Prepare for shortages by creating an emergency cash fund.

If your big contract doesn't pay for another 90 days, you may want to look into obtaining a bridge loan from your bank, or leverage an existing line of credit. If you're in a bind, you can also ask suppliers to relax your payment terms temporarily. Your business will probably experience a cash shortage at some point, so prepare in advance.

Incorporate useful technology

Tech tools, including QuickBooks, FreshBooks, and Xero, can also help you track cash flow. These services can organize your income and expenses, schedule your bill payments, and invoice clients on your behalf.

Cash flow management is a critical part of your daily operations. Make it a part of your daily routine so you can be sure of your business's available cash at a moment’s notice.


1 "How to Better Manage Your Cash Flow." Entrepreneur. (2015)