How to Manage Your Small Business Cash Flow

As a former business advisor, I often asked clients, "Do you know how to manage your small business cash flow?" I was always surprised by the number of small business owners that had no clue on how to manage their cash flow. In some cases, cash flow issues were heading them towards bankruptcy.

One Person Rule

In a small business, I suggest the, "One Person Rule," when it comes to cash flow. There should be one set person who has the job of monitoring your small business cash flow. That one person should have the responsibility of checking all cash income, and expenditures. Often, there are too many hands in the pot at one time, and this costs the company in more ways than one.

Expenditures Reporting

Sometimes, small business owners believe that expenditure reporting adds to bureaucracy in a company. Actually, if an employee is required to report all expenditures that they have to make, and why. A set form should be used that includes the date, the amount, the reason for the expenditure, a signature line for the employee, and a signature line for whoever the one person is that you put in charge of monitoring the small business's cash flow. Appropriate receipts should be stapled to this form.

Monthly Expenditures Report

Each month, the person who was put in charge of monitoring the cash flow for the small business should collect all of the expenditure reports for the month and create a report. This report can be used by the small business owner to decide what costs are important, and which are not important to the business.

Investigate

Any discrepancy in a small business cash flow needs to be investigated. While some will lead to human error, others will lead to dishonest employees that are causing cash flow issues. I once found discrepancies between the expenditure receipts and the amount of toilet paper in the bathrooms of a small business. We found out that a worker was using company money to buy toilet paper for her home.

No Petty Cash Loans

I cannot count the number of times in which I came across a small business that would allow employees to take money out of the petty cash account, or out of the register to buy lunch, get gas for the way home, or to just use as a short-term loan. Employees sometimes forget to return the money, and this can cost owners in the long-term. This cash flow procedure can also catch those trying to steal from your business.

Always Count the Money

There are also many small businesses that I have worked with that do not count the money in their registers. While most employees are honest, there are employees out there that can cause a lot of cash flow issues for small businesses. Some steal, while others accidentally give the wrong change to a customer from time to time. These types of issues can be narrowed down by regularly counting the money.