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Top 10 Cash Management Tips for Small Businesses

Learn about our top 10 Cash Management Tips for Small Business. Review the fresh insights article for tips.

Cash. For the small business it's a precious commodity, and effective cash management can help any company make the most of what they have on hand. Here are 10 essential tips.

1) Forecast Cash Flow

This is an easy one to overlook—so long as cash is coming in and the books balance every month, why forecast cash flow? Yet an accurate picture of income and expenditures makes it easier to identify when an invoice hasn't been paid, a bill is outstanding or overall business volume is decreasing. In addition, cash forecasting helps mitigate the impact of unexpected downtimes or disasters, since owners know how much cash they can expect next month and also budget for necessary expenditures, such as repairs.

2) Optimize Tax Returns

Few business owners like doing taxes, especially if they result in a balance owing. But it's a good idea to do two things with returns: Have them evaluated by a professional accountant for accuracy and look for tax savings at both the federal and state levels. In states like Texas, certain commodities are exempt from taxable status.

3) Look for State Incentives

While its possible to reduce cash outflow through federal tax incentives (link sends e-mail), it's also worth looking for state-specific options. For example, the state of Texas (link sends e-mail) offers a renewable energy incentive program which lets business owners deduct the cost of a solar energy system from their company's taxable capital, or alternatively deduct 10 percent of their total income.

4) Trim Capital Expenses

Capital expenditures such as vehicles, office space or network infrastructure may not be optional, especially if a company is experiencing rapid growth. Effective cash management, however, depends on investing wisely in capital purchases when they are necessary and cutting back where possible. This means that opting for an extra 200 square feet of office space might make sense over the long term, yet spending an extra $10,000 on marketing may not—return on investment (ROI) should always outpace expense over time. It's also possible to defray capital expenses by repairing current equipment or buying used items.


5) Find Faster Payment Options

These could take the form of discounts or incentives which encourage customers and vendors to pay on time or before their invoice is due. It's also a good idea to examine mobile payment options which allow consumers to pay securely by credit card and receive an email receipt.

6) Review Your Payment Structure

Paying employees by physical check? Consider switching to direct deposit, since some major banks tack on a surcharge of a dollar or more per check. Paying employees monthly or bi-monthly rather than every two weeks also can reduce costs since fewer transactions will be required.

7) Have a Back-up 

It's a good idea for companies to establish ongoing relationships with their preferred business bank—this starts with using bank services for payroll and may extend to include savings or investment accounts. These relationships create a framework of trust, which can be helpful in securing loan or credit line approval.

8) Don't Leave Cash Lying Around

Invest! Savings accounts, certificates of deposit (CDs) and money market accounts typically pay better interest than standard business checking accounts. If possible, invest the bulk of company assets in higher-yield funds and keep only what's necessary in easily accessible accounts.

9) Streamline Supplier Payments

Suppliers want to be paid, but paying everyone as early as possible can make long-term cash management confusing. Instead, set up a regular schedule for each payment that satisfies supplier needs while still regulating cash outflows.

10) Increase Cash Flow

Similarly, make sure customers don't wait too long before paying. Invest in a system that automatically generates and sends out past-due notices for customers, and don't be hesitant to use collection services when warranted. Another idea is to take deposits on large or unusual orders so that if the order is canceled or never picked up, at least some of the cost can be recouped.
Cash management is the key to the long-term health of any small business; minimize outflows, streamline inflows and know exactly where every dollar is going.
Learn how Cadence's Employee and Payroll Benefits solutions, like Direct Deposit, can help streamline your business's cash flow.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

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