Managing cash flow and maintaining liquidity is critical to business success

One of the most fundamental concerns for businesses today is having enough liquid assets to meet short-term obligations like wages, rent, suppliers and debt services. In fact, a poll by Treasury Today found that financial, liquidity and insolvency risks were ranked the most serious risks for businesses. They can be caused by delays in customer payments, rising costs for labor, and a lack of contingency plans if disruptions occur.

Cash flow is the amount of cash and cash equivalents transferred in and out of your business, and it’s often tracked weekly or monthly. When you have a positive cash flow, your business brings in more money than it spends, giving you enough cash to cover your operating expenses and pay for business improvements. When you have a negative cash flow, your business is spending more than it’s bringing in, which puts you in the precarious position of dipping into your reserves to cover basic expenses like payroll. Here are some tips for managing cash flow, according to Truist.com:

Link your capital strategy to long-term goals. Think about your business plans for three to five years down the road. Determine what cash flow you’ll need along the journey.

Constructively manage your working capital. Factors to help are keeping track of days it takes to receive cash after customers make a credit purchase, days a business generally takes to pay its bills, and days it takes to convert inventory to sales. Keeping close track of your inventory is obviously important.

Look at your investment strategy. That may mean meeting as a team to discuss investment decisions based on cash flow and timeliness of purchases.

Develop or invest in a reliable financial management system. That system can provide you with a consolidated snapshot of money from all funding sources, advanced capital planning capabilities, more in-depth financial statements, ways to increase your efficiency and reduce waste, improve your forecasting and scheduling and beef up security.

Try making payments electronically if you aren’t already doing that. A 2022 survey by the Association for Finance Professionals found that only 33 percent of B2B transactions were made by check, down 9 percent since 2019. The same survey found that 75 percent of respondents said doing so electronically had a positive impact on their businesses.

By forecasting better cash flows, you can reduce your capital needs, so the better your returns will be. You can lower the amount of capital you need by reducing inventory carrying costs, such as storing raw materials and unfinished goods; altering payment terms for customers and suppliers; and financing your equipment and real estate
purchases.

Look at all of your accounts, and move cash around to different categories as needed. Use digital tools as advanced banking and accounting technology allows you to better track and manage your cash. Collect your financial data for predictive modeling (patterns that repeat themselves or form trends). And be sure to use fraud prevention technology. According to the 2023 AFP Payments Fraud and Control Survey, 65 percent of businesses were victims of fraud attacks or attempts.