5 ways to effectively manage cash flow

June 22, 2020

Managing cash flow can be one of the top challenges for small business owners. Here are 5 tips to ensure you are making the most of your cash.


At the center of nearly every small business is its cash flow. Cash flow is the amount of money that comes in to your business, how much goes out, how much is owed to you and how much you owe. It is a simple concept that can hinder small business growth when not adequately managed.

In fact, poor cash flow management is one of the primary reasons small businesses fail. Even if a business has a lot of money coming in (positive cash flow), mismanaging that money can lead to problems.

We have put together these five strategies for managing cash flow: 


1. Keep control over your invoices

In most cases, you are in business to provide a product or service in exchange for payment. So while it can be hard to follow up on unpaid invoices or pressure clients to pay, doing so is essential to your cash management. Carefully record and track each invoice sent, payment received, and delinquent payment to assure you are not leaving money on the table, or negatively impacting your cash flow.


2. Keep cash on hand

Just like in personal finances, a business should always have a reserve (emergency) fund to cover slow periods or unexpected expenses. If possible, have enough cash on hand to cover three to six months of expenses, and to help ensure that you never fail to cover important costs like payroll or inventory.


3. Speaking of inventory, don’t overdo it

With many manufacturers and material providers offering discounts for buying in bulk, it can be tempting to order an excess of inventory in exchange for savings. But idle, or worse, expired, inventory comes with costs, and those must be weighed against the savings. When possible, keep only enough inventory on hand to meet your customers’ needs.


4. Be careful with credit

This is two-fold: You should be careful of borrowing too much credit or extending credit to your customers. When borrowing to cover costs of equipment or inventory, you want to be mindful of payments and interest and make sure you can handle the terms of your loans. Or, if you allow customers to pay over time, have a credit approval process in place to make sure your clients will be able to pay.


5. Keep costs under control

When a business is healthy and making money, it can be tempting to spend that profit. Instead, consider what you are spending and whether it improves the health of the business. For instance, a piece of equipment to replace a malfunctioning unit may lead to greater productivity, while a top-of-the-line espresso machine for the break room may not (though there can be benefits to increasing employee morale). If you need a place to stash extra cash, consider your reserve fund (see tip #2).

By keeping tight control over your cash flow, you will be better able to manage the ups and downs of your business, and keep your business healthy and strong.


Talk to a business banker at U.S. Bank who can help you sharpen your cash management skills, or visit usbank.com/business-banking for more information. 

Learn about U.S. Bank

Related content

Addressing financial uncertainty in international business

Higher education and the cashless society: Latest trends

U.S. Bank asks: Do you know what an overdraft is?

U.S. Bank asks: Transitioning out of college life? What’s next?

How to increase your savings

4 ways Request for Payments (RfP) changes consumer bill pay

5 winning strategies for managing liquidity in volatile times

ePOS cash register training tips and tricks

How jumbo loans can help home buyers and your builder business

Allowance basics for parents and kids

A simple guide to set up your online ordering restaurant

6 questions students should ask about checking accounts

Adulting 101: How to make a budget plan

How community gave life to lifestyle boutique Les Sol

Dear Money Mentor: How do I pick a savings or checking account?

5 tips to use your credit card wisely and steer clear of debt

The A to Z’s of college loan terms

The client-focused mindset: Adapting to differing personality types

Is your restaurant Google-friendly?

Technology strategies to complement your business plan

How to fund your business without using 401(k) savings

Opening a business on a budget during COVID-19

Use this one simple email marketing tip to increase your reach

What corporate treasurers need to know about Virtual Account Management

Omnichannel retail: 4 best practices for navigating the new normal

How to cut mindless spending: real tips from real people

How Everyday Funding can improve cash flow

How to choose the right business checking account

How to manage money in the military: A veteran weighs in

Why retail merchandise returns will be a differentiator in 2022

Refinancing your practice loans: What to know

Practical money tips we've learned from our dads

How business owners are managing during the supply chain crisis

How a small business owner is making the workplace work for women

Webinar: CRE technology trends

How compound interest works

First-timer’s guide to savings account alternatives

Business risk management for owners of small companies

3 simple brand awareness tips for your business

In a digital world, Liberty Puzzles embraces true connection

Meet your business credit card support team

Putting home ownership within reach for a diverse workforce

High-cost housing and down payment options in relocation

How a small business is moving forward during COVID-19

Here’s how to create a budget for yourself

6 ways to spring clean your finances and save money year-round

A who’s who at your local bank

Administrator accountability: 5 questions to evaluate outsourcing risks

Employee benefit plan management: trustee vs. custodian

What financial advice would you give your younger self?

Travel for less: Smart (not cheap) ways to spend less on your next trip

Improve online presence your business

Celebrity Cake Studio’s two decades of growth and success

5 tips for parents opening a bank account for kids

Evaluating interest rate risk creating risk management strategy

4 questions you should ask about your custodian

Bank from home with these digital features

How a travel clothing retailer is staying true to its brand values

Webinar: CSM corporation re-thinks AP

Helpful tips for safe and smart charitable giving

Real world advice: How parents are teaching their kids about money

Prioritizing payroll during the COVID-19 pandemic

3 ways to keep costs down at the grocery store (and make meal planning fun)

Year-end financial checklist

Choosing your M&A escrow partner

The role of ethics in the hiring process

Insource or outsource? 10 considerations

How to get started creating your business plan

How having savings gives you peace of mind

Dear Money Mentor: How do I set and track financial goals?

6 common financial mistakes made by dentists (and how to avoid them)

5 unique ways to take your credit card benefits further

3 tips to maintain flexibility in supply chain management

30-day adulting challenge: Financial wellness tasks to complete in a month

Business tips and advice for Black entrepreneurs

Financial gifts can be a valuable – and fun – choice for the holidays

Leverage credit wisely to plug business cash flow gaps

Gift cards can extend ROI into 2022

For today's relocating home buyers, time and money are everything

Crypto + Relo: Mobility industry impacts

Complying with changes in fund regulations

Unexpected expenses: 5 small business costs to know and how to finance them

Checklist: Increase lead generation with website optimization

Tips for building a successful customer loyalty program

Service provider due diligence and selection best practices

How I did it: Learned to budget as a single mom

How to stop living paycheck to paycheck post-pay increase

10 ways a global custodian can support your growth

8 Ways for small business owners to manage their cash flow

Preparing for your custodian conversion

Webinar: 5 myths about emergency funds

Webinar: Train your brain for smart financial habits

Tips to overcome three common savings hurdles

Webinar: Uncover the cost: International trip

Essential financial resources and protections for military families

How to spot a credit repair scam

5 tips to use your credit card wisely and steer clear of debt

ABL mythbusters: The truth about asset-based lending

High-yield bond issuance: 5 traits lawyers should look for in a service provider

Give a prepaid rewards card for employee recognition

How to reward employees and teams who perform well

5 steps for creating an employee recognition program

Easier onboarding: What to look for in an administrator

How to test new business ideas

The different types of startup financing

How to redefine challenges with business collaboration

Empowering team members

10 tips on how to run a successful family business

8 ways to increase employee engagement

How to hire employees: Employee referral vs. external hiring

What you should know about licensing agreements

The growing importance of a strong corporate culture

Business credit card 101

5 tips for managing your business cash flow

How to apply for a business credit card

How to make the most of your business loan

Break free from cash flow management constraints

How Shampoo’ed is transforming hair and inspiring entrepreneurs

The San Francisco bridal shop that’s been making memories for 30 years

How Al’s Breakfast is bringing people together

How a group fitness studio made the most of online workouts

How Wenonah Canoe is making a boom in business last

How a bar trivia company went digital during COVID-19

How to build a content team

How (and why) to get your business supplier diversity certification

Cashless business pros and cons: Should you make the switch?

The client-focused mindset: How to network effectively

Refining your search for an insurance custodian

What type of loan is right for your business?

Webinar: AP automation for commercial real estate

The future of financial leadership: More strategy, fewer spreadsheets

The client-focused mindset: What do clients expect?

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Credit products are offered by U.S. Bank National Association and subject to normal credit approvals and program guidelines. Some restrictions and fees may apply. See a banker for details.

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.