Covid-19 has brought new challenges to small and medium-sized enterprises (SMEs) by creating a climate of insecurity. In recent months, many companies have had to adjust their business model and cut back to make ends meet. With payments piling up and sales dropping off, the liquidity of many businesses has taken a hit.

Cash flow is one of the most important indicators for any business, as it is used to analyze the financial health of a company and its ability to meet its financial obligations. Its good management implies not only having an orderly accounting, but also making the right decisions regarding the right reserves to keep in order to operate the company. As a result, cash management often becomes a rather complicated task. Fortunately, if you follow these 7 practical entrepreneurial tips, you will be able to better manage your cash flow.


7 Tips to Improve Your Cash Flow Management

Cash flow management is essential in any business, and lack of liquidity is the number one reason businesses fail. That’s why making sure you’re able to meet your payment obligations to your suppliers, pay your loan installments and payroll should be one of your primary goals. Late payments are not only costly, they also damage your company’s image and credibility. Good cash flow management will allow you to know your purchasing power, the payment terms that suit you and the credit that can be granted on your sales.

1. Make a Cash Flow Forecast

Every business should set short-term goals, taking into account the seasonal variations of its activity. Making a cash flow plan, commonly called a Cash Flow Budget, will allow you to estimate how much money your company will receive and spend over a certain period of time in order to anticipate surpluses or shortfalls. To create your plan, you can analyze historical data from your company or companies similar to yours, applying correction factors that take into account the current situation. Don’t forget to include fixed and variable costs and, most importantly, make realistic forecasts. You will find a small tool in our toolbox to help you do this.

2. Track Your Payments and Recoveries

Most companies do not pay their invoices upon receipt and prefer to defer payment for 60, 90 or even 180 days. This deferral can lead to a risk of default that will be costly for the company. For this reason, it is important to have clear payment terms in your quotes or contracts, and to repeat them on your invoices. Then pay particular attention to late payments, call your customers, make special arrangements, but do not let the collection of your accounts at the pleasure of your customers, keep the pressure, but remain polite. Those who shout the loudest (nicely…) have the best chance of being heard.

3. Control Your Inventory

The cost of inventory storage can sometimes be as high as the risk of having to order more. In both cases, purchases often have to be paid for before the sale is made, putting pressure on cash flow. Knowing at all times what you have in stock and what you need to order will help you avoid tying up money in unnecessary inventory. To avoid these problems, it is wise to invest in a permanent inventory management system that will allow you to better predict your purchases. There are several affordable apps on the market, including Zoho Inventory.

4. Treat Your Lenders Well

Financing is an essential element in ensuring business growth. In some cases, the continued development of the company’s products/services requires significant investments. It is therefore important to maintain a good relationship with your lenders and to inform them punctually of your current situation, your projects and your forecasts. This way, they will trust you more and will be more likely to treat you favorably if your company needs financial support.

5. Obtain a Loan if Necessary

A line of credit or a new bank loan can help accelerate the growth of your business. Banks are usually willing to lend money to a business on a short-term basis if they receive a draft service agreement or letter of intent from a financial partner. A financing package reduces the risk to the lender. It allows funds to be combined from multiple sources to finance a project. Watch for grant programs. The Temporary Concerted Action Program for Enterprises of Investissements Québec or the Business Credit Availability Program of the BDC could be of great help.

6. Keep Your Spending to a Minimum

Saving is conditional on spending. If you can’t increase your income in the short term, reducing your expenses is an excellent way to control your cash flow. To do so, it’s important to control the frequency with which you pay your suppliers and consider negotiating more flexible payment terms. Update your accounting, monitor recurring expenses such as subscriptions paid monthly on your credit cards, share the cost of less busy resources with other companies, sublet space or your own, outsource certain functions. As you look at your profit and loss statement, identify opportunities to reduce expenses.

7. Anticipate Problems Before They Occur

This forecast involves monitoring the financial situation of your customers and suppliers, in addition to the current market situation. However, since this is a complex analysis, it is best to consult an expert in order to obtain a financial model. This will allow you to do scenario analysis, evaluate your company’s risks, estimate your costs and assess your financing needs.


Need Help Managing Your Company’s Finances?

Cofinia specializes in accounting, financial management and business intelligence to facilitate the growth of SMEs. We optimize business management by offering customized solutions and facilitating the integration of technological tools such as ZOHO. Do not hesitate to contact us if you need more information about our services!

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