How Do I Effectively Manage Cash Flow?

How Can I Effectively Manage Cash Flow During Economic Uncertainty?

Managing cash flow is critical for the survival and success of small businesses. This blog offers practical guidance on navigating cash flow challenges through strategic budgeting, forecasting, and exploring various financing options.

Strategic Budgeting for Stability

Budgeting is always a good exercise, but when cash is tight, it becomes crucial. By adhering to a well-maintained budget, businesses will promote financial stability, ensuring that cash reserves are allocated efficiently to sustain operations during turbulent times. A good budget:

  • Assesses the current financial standing and identifies areas of expenditure
  • Prioritizes essential expenses and cuts non-essential costs
  • Sets realistic revenue targets based on market trends and projections

Proactive Forecasting

Forecasts serve as a roadmap for businesses to prepare for future financial scenarios. Through proactive forecasting, businesses can anticipate cash flow fluctuations, enabling them to implement preemptive measures and adjust strategies accordingly to mitigate risks and seize opportunities. A good forecast:

  • Analyzes historical data and market trends to make informed predictions
  • Prepares for potential downturns by scenario planning and stress testing
  • Is continuously updated to reflect evolving economic conditions

A tool we use with many of our clients is the 13-Week Cash Forecast. Loved by CFOs, the forecast is a living spreadsheet that predicts the cash needs for the next quarter (or 13 weeks). Learn more about maintaining a Cash Forecast in this blog post and download our free template here.

Exploring Financing Options for Flexibility

In uncertain economic climates, accessing additional funding can provide flexibility. Exploring financing options empowers businesses to address immediate cash flow challenges and invest in future growth initiatives, safeguarding against the adverse effects of economic instability. Financing options include:

  • Bank loans or lines of credit
  • App-based loans such as PayPal or Stripe
  • Accounts receivable factoring services
  • Owner financing or friends/family loans
  • Private equity financing
  • Government loan programs through the Small Business Association (SBA)

A word to the wise about loans: We are in a new economic environment that some generations haven’t seen in their professional careers. For quite some time, money has been “cheap” (low-interest rates) and easily accessible. This isn’t the case any longer and special care needs to be taken to account for higher interest rates when projecting cash needs. 

Regardless of the current rates, discipline must always be used when taking out loans. It can easily become a vicious cycle for small businesses and cause undue stress for the owners. Proceed cautiously when taking on debt. Pay attention to the terms and the total cost of the loan.

How WG Approaches Cash Management

Current and accurate accounting is essential for effective cash flow management. With the appropriate team in place to look after the accounting supported by modern automation, our clients have the benefit of real-time data to make informed decisions. Good accounting data and the weekly routine of reviewing the 13-Week Cash Report with client leadership is a powerful workflow. These processes allow for informed cash decisions and prevent unwanted cash surprises.

At Walker Glantz, we understand the complexities of cash flow management and offer tailored solutions to support your financial needs. From expert financial analysis to fractional CFO services, we’re here to help you navigate uncertain times and achieve your business goals. Contact us today to get started.