Five Tips to Improve Cash Flow for Small Businesses

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Five Tips to Improve Cash Flow for Small Businesses


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By: Brian Compton, Business Banking Sales Manager, PNC Bank

For the nation’s small businesses, the economy finally exhibits signs of improving. But many small business owners still need to strengthen cash flow in 2011. As venture capitalist Fred Adler put it, “Happiness is a positive cash flow.”Indeed, more businesses fail for lack of cash flow than for want of profit.

Many ways exist to ensure that cash revenues exceed cash outlays, including simply changing business processes and getting tougher about collecting bad debt.PNC offers five proven ways to enrich business cash flow.

1. Develop an informed forecast. Determine your current cash flow and its future outlook. Tabulate all significant cash inflows that relate to sales, new loans, interest received and the like. Then analyze expected payments relating to wages, suppliers, capital spending, loan repayments, tax, interest payments and other expenses. The result will be net cash flow, positive or negative. Many businesses use a rolling forecast because of the flexibility it provides in responding to changing and volatile market conditions. This is especially helpful if your sales start increasing and you find yourself thinking about adding employees and inventory. Those steps will accelerate near-term cash disbursements, so it’s important to map out when you expect expenses to increase before sales do, usually before your big sales season.

2. Take advantage of innovative technologies. Software is available today that offers a computer-based mathematical model to prepare cash-flow projections and estimate short-term banking requirements. Advances in payment technologies provide online bill pay services that will help decrease the time and costs involved with paying bills.Additionally, credit, check and purchasing cards can help control the timing of payments and track spending more effectively.

With today’s affordable computer software, small businesses can invoice promptly and follow up quickly when payments are slow to arrive. They also can track receivables to identify slow-paying customers.

3. Invest excess cash effectively. Times do occur when a business owner has more cash on hand than needed to meet current obligations.When this happens, take advantage of mechanisms like sweep accounts, money-market accounts and certificates of deposit to invest excess cash while maintaining liquidity.Sweep accounts have become increasingly popular among businesses because they provide higher returns on cash that might otherwise languish in commercial checking accounts.

4. Ensure access to cash.Don’t wait to obtain financing until you have an urgent need for cash. Establishing a revolving line of credit when you are flush with cash ensures access to the credit needed to respond to cash shortfalls or to take advantage of fresh opportunities. Access to emergency financing is vital for small businesses.Business owners generally find that it takes longer to be paid than expected.If you wait until your situation is precarious before seeking a credit line, most banking institutions won’t extend credit. Many small businesses set aside funds in an interest-bearing "rainy-day" account that they can draw on in an emergency. These reserves, however, should be set up before they're needed.

5. Don’t be afraid to ask an expert. A third-party expert’s perspective and guidance can prove invaluable.Many financial institutions have created “Ask an Expert” services. PNC offers a service called Cash Flow Options, or CFO. The service furnishes a customized analysis of a business’ cash flow and recommends the tools needed to prepare for the peaks and valleys that all businesses experience.

Such tools and processes can help a small business accelerate its cash flow by:

·Streamlining its systems for accepting payments

·Enhancing its cash position by changing the way it pays, which takes a short time and costs less

·Investing its excess cash at the cash-flow peak to prepare for income valleys

·Using online information and reporting tools to make better business decisions

As the lifeblood of your business, it’s clear just how important maintaining a positive cash flow is for small business owners. With an informed forecast and the proper tools, you can weather cyclical and competitive challenges while growing your business.

For more information, contact Brian Compton, Business Banking Sales Manager, PNC Bank, at 301.392.5168 or visit

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