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5 smart strategies entrepreneurs need to manage cash flow

Cash flow is like oxygen for an entrepreneur — if there’s not enough of it coming in, the business will quickly end up on life support. That’s why it’s important to always have a handle on your supplies, managing each and every month, to leave you with enough breathing room. Try these strategies to work your business’ cash flow more effectively.

Use cash flow as a pulse: Tracking your cash flow — cash receipts minus cash paid out — gives you a handy freeze frame of your financial picture, month by month. (To help you kick this off, the U.S. Small Business Administration has many templates and resources.) Once you have 12 months of data, you’ll have a tool that tells you whether your venture is on track, and what needs improvement. When it's time to grow, this documentation provides helpful information to lenders as well as potential partners and investors.

Have check-ins with your vision: The start of every business plan begins with completing 3- year cash flow projections. This allows entrepreneurs to run best-case and worst-case scenarios so they can start with a clearer forecast. Don't forget to schedule time at the end of every budget cycle to check in with your business plan and run another 3-year cash flow projection. This helps you stay on track and plan your expansion and growth.

Boost your reserves: During a flush period of cash flow, it’s only human nature to want to let loose and start putting long-held plans into action. Before you write the bonus checks and get bids on new trucks, start a rainy day account. Your needs will depend on the health and nature of your business, but most small businesses should aim to build enough reserves to cover 60-90 days worth of expenses. Talk to your Minnwest lender about our automated investment options, so your reserves earn interest without locking up capital when you need it most.

Know when to get the loan: Financing is a smart solution to certain kinds of cash crunches, especially if they can help you grow your business. A large order often needs an influx of cash to cover wages and supplies. Short-term loans can also see you through business slumps, but always be realistic. In times of uncertainty, talk to your lender.

Speed up cash flow: When you’re earning it in, but it takes months before the money shows up, that can also put the choke on your cash flow. You might need to work a few levers to break up that accounts receivables log jam. Get clients and customers to pay their bills more quickly. If it’s practical, collect payment at the time of service, or increase your billing cadence to once or twice a week, instead of monthly or bi-monthly. When clients are late, respond quickly. Mail that second notice and follow up with a phone call, so you have a chance to hear about and solve any lingering issues that are holding up payment.

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