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5 Tips for Managing Small Business Cash Flow From Your Local Waco Bank

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Ardent Authors Photo

Jason Lavender

Ardent Authors Photo

Jason Lavender

Jason Lavender

Jason Lavender

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You’ve probably heard this before – cash is king. While profit and cash flow are both good indicators of a company’s financial health and important to the overall big picture, a company can report profits, but if the company’s cash flow dries up, it can mean the impending death of a business.

As a small business owner, managing cash flow can be a challenging task. It requires a balance of understanding your business’s cash flow cycle, implementing effective invoicing and payment systems, monitoring expenses, maintaining a cash reserve, and seeking the right kind of professional financial advice. With the support of TFNB Your Bank for Life, a trusted small business banking partner in the Waco and Central Texas bank community, you can maintain a healthy cash flow for your business.

In this article, our team weighs in with five essential tips to help you manage your small business’s cash flow effectively.

Understand Your Cash Flow Cycle

What is cash flow?

Do you know what cash flow is and how it works? If not, don’t worry – you’re not alone. Many small business owners don’t understand how cash flow works, which can lead to some serious problems down the road.

So what is cash flow? Put simply, cash flow is the movement of money into and out of your business. Money coming into your business is called inflow, while money going out of your business is called outflow. Your goal should be to have more money coming in than going out, which is known as positive cash flow.

Of course, that’s easier said than done. To have positive cash flow, you need to understand your cash flow cycle. The cash flow cycle is the length of time it takes to turn your inventory into cash. In other words, it’s the time it takes from when you make a sale to when you receive payment for that sale.

Ideally, you want your cash flow cycle to be as short as possible. That way, you’re not tying up a lot of money in inventory that isn’t selling. But in reality, it’s not always possible to have a short cash flow cycle. Some businesses, like retailers, have to carry a lot of inventory because they need product on hand to sell to customers.

Other businesses might have a long cash flow cycle because they provide services that aren’t paid for immediately. For example, if you’re a consultant, you might do work for a client and then bill them 30 days later. In this case, it might take 60 days or more to get paid.

The key is to understand your cash flow cycle and plan accordingly. If you know it’s going to take 60 days to get paid, you need to make sure you have enough cash on hand to cover expenses during that period. Otherwise, you could find yourself in a bind.

You can do a few things to help improve your cash flow. Here are some practical steps you can take:

  • Offer Early Payment Discounts: Encourage customers to settle their invoices sooner by providing discounts, thereby contributing to a more streamlined cash flow cycle and ensuring quicker access to funds for your business.
  • Provide Customer Financing: Offering financing options to customers for significant purchases can accelerate cash inflows. However, be mindful of the risks involved; offering excessive financing may lead to financial challenges if customers fail to repay their loans.
  • Negotiate Extended Payment Terms with Suppliers: Work with suppliers to negotiate longer payment terms, such as extending from 21 to 30 days. Lengthened payment terms can provide your business with more time to manage its cash outflows, reducing immediate financial strain.

Implementing these simple strategies can contribute to a healthier cash flow, offering your business greater financial flexibility and resilience.

Implement Effective Invoicing and Payment Systems

When it comes to managing your small business cash flow, implementing efficient invoicing and payment systems is key. You need to get paid after all to keep that cash flowing in. Streamlined invoicing processes and prompt payment collection ensure that your business receives payments on time, providing you with the steady revenue flow your business needs to survive. To ensure the process is even smoother, pick a bank that allows easy integrations of your accounting software with your accounts.

TFNB Your Bank for Life’s business checking accounts all offer seamless integrations with Microsoft Excel, Quicken, and QuickBooks. This feature simplifies your bookkeeping tasks by consolidating them in one place, allowing you to channel your focus toward more critical aspects of your business.

Monitor and Control Expenses

Staying on top of your daily business expenses is key to understanding the in and outflow of your available cash. One feature our small business owners find indispensable is having an app on their smartphone to be able to safely check balances, track expenses and move funds within accounts with just a few taps. We recognize the need for seamless expense tracking, and that’s why our TFNB Mobile app puts financial control in the palm of your hand.

TFNB Cash Management Department

Our commitment to empowering small businesses extends beyond conventional banking services. Our dedicated Cash Management Department plays a pivotal role in ensuring the smooth operation of small businesses. Tailoring our services to meet the unique demands of businesses like yours, we provide a comprehensive suite of solutions. Whether it’s facilitating secure wire transfers, managing ACH transactions, handling payroll with efficiency, or offering expert guidance on credit card transactions, our Cash Management Department is your trusted partner.

Navigating the intricate landscape of financial transactions can be challenging. However, with our Cash Management experts by your side, you can redirect your focus to business growth while entrusting financial intricacies to our capable team. We are equipped to optimize your cash flow, mitigate operational risks, and enhance overall financial efficiency.

Key Advice for Startups

One word of advice: if you’re just starting out, we recommend the establishment of a dedicated business checking account and business savings account separate from your personal accounts. This separation ensures clarity in tracking your business finances and understanding your business’s cash flow.

All of our commercial banking services include these online and mobile banking services with our TFNB Mobile app, which empowers you to regularly check account balances and transactions from anywhere, providing better oversight of your expenses.

Maintain a Cash Reserve

Every small business needs a cash reserve that can act as a safeguard during unforeseen circumstances or financial difficulties. It can also help you fund your growth plans and stay competitive. There are various ways you can ensure your business has a reserve at the ready:

  • Line of credit: We discussed in an earlier blog how a line of credit can work to your business’s advantage when it comes to managing your available cash. A line of credit ensures that cash is readily available for your business, allowing you to address various financial requirements. Unlike a traditional commercial loan, a line of credit doesn’t provide a lump sum upfront. Instead, it offers the flexibility for you to borrow as needed, up to the predetermined credit limit. Importantly, you only pay interest on the amount you borrow, making it a more versatile and cost-effective financing option for your business.
  • Commercial credit cards: A credit card is a simple, highly practical tool that businesses can use for everyday business expenses. When used responsibly, it not only organizes your expenses and makes payments online safer but it can also be used as a financial safety net when cash flow slows at certain points in the month or year. With specific TFNB Visa credit cards, you can choose to be rewarded for your purchases or receive cash back on routine purchases your business needs anyway.

Seek Professional Financial Advice

Managing your small business’s cash flow can be a daunting task, and it’s always beneficial to turn to a team of experts when you’re feeling uncertain. At TFNB Your Bank for Life, we are committed to providing local small businesses with professional financial advice. When you partner with us, our friendly bankers get to know you and your business goals personally — you’re much more than just an account number to us. That’s why small business owners in the Central Texas community have trusted us with their businesses for the last 130 years to keep their dreams alive. We’re here to support you through every step of your small business journey, from managing cash flow to developing long-term financial strategies. Whether you’re just starting out or you’re farther along in your business journey, it’s nice to know there’s a reliable team in your corner.

5 Tips for Managing Small Business Cash Flow From Your Local Waco Bank

TFNB—Your Business Bank For Life

TFNB Your Bank for Life understands the unique needs of small businesses and offers tailored banking solutions such as business checking accounts, small business loans, and business savings accounts. We are your trusted local banking partner in Waco and throughout Central Texas, committed to providing personalized service and support you won’t find anywhere else. If cash flow is keeping you up at night, please reach out to our friendly team for the solutions you need.

Ready to learn more? Check out our educational resources for small business owners, or explore our Waco business banking services.

If you have any questions or would like to know more about our banking solutions, contact us at 254-840-2836

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