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Anyone who owns or works for a small business knows the art of cash flow management. Cash flow management is, according to accounting hub Tipali, “tracking and controlling how much money comes in and out of a business in order to accurately forecast cash flow needs. It’s the day-to-day process of monitoring, analyzing, and optimizing the net amount of cash receipts — minus the expenses.” Put simply, cash flow management ensures you can pay your expenses every month. Why is cash flow management important? According to SCORE, 82% of small businesses fail due to cash flow problems.
For Black businesses the lack of access to capital or trusted banking relationships can make cash management a difficult subject. But that’s why it’s so important — it will help you guide your business through rainy days and make your annual strategies more precise.
Cash flow management is what allows a company to grow responsibly and be able to pay for the growth without expensive debt. Here are a few tips for any small business owner to think about cash management for their business.
1. Not enough money?
If your cash flow problem is your business is not making enough cash, that is not a cash management problem, it is a business model problem and that is a different thing. Negative cash flow, or when more money is flowing out of the business than coming in, can be a growth strategy for your business, but not a constant state and you want to make sure you still have an operating budget to be able to continue your day-to-day work and payroll. However, negative cash flow comes with a plan or strategy. If your business is just not making enough money, then changing your business model may be a better approach than managing cash flow.
2. Review your money trauma
Everyone has money trauma, even rich people. Money trauma is experiencing stress and anxiety when it comes to making financial decisions or budgeting. Trauma around money for many Black families comes from the generational and systemic violent exclusion in the economy. From the Tulsa Massacre to the 2008 mortgage crisis, Black families have personal and historical trauma. But that is not an excuse to not be on top of your business financially. Working through trauma like scarcity mentality, bank exploitation or poverty is important to give yourself the confidence to run the financial aspect of your business.
3. Have two budgets
A small business should have at least two budgets. One is a bells and whistles budget with how you can run your business focused on growth. The other is a lean budget that allows you to run basic operations when times are hard. Having these two budgets will help you understand what aspects of your business are critical vs. nice to have. Many businesses have cycles. Think of Black Friday, when one day can make or break a retail business. Understanding the cycle of your business can also help you better understand how cash moves in and out of your company. When cash flow is tight you can slow other expenses and take on less debt.
4. Pay your taxes quarterly
While it may seem like a pain in the butt, keeping up on your taxes throughout the year will help you avoid a large payment and maybe even more in penalties. It will also keep you open for any friendly or bank debt you may want to take on.
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