Managing Capital and Cash Flow – Liquidity, Solvency, Cash Management and Payments

Cash flow. It’s the top priority for most small businesses, and for good reason, because cash flow problems are the top reason small businesses fail, according to SCORE.org.

Having solid cash flow and access to capital directly impacts small businesses in practically every way, from managing assets and operations to financing and managing supply chains.

Key areas small businesses can initially zero in on to set up and manage their cash flow and capital are liquidity and solvency, and cash management and payments.

Liquidity & Solvency

While liquidity looks at the short-term capability of your small business to pay its liabilities, solvency looks at the long term. Both are key to your business’ success at any stage, and there are options available to address both in tandem.

For example, if you are having difficulty turning assets into cash quick enough to keep your business in a liquid position, your long-term solvency could be affected. This is where access to capital is paramount. By having access to the funds you need, whether through a U.S. Small Business Administration (SBA) loan, a traditional small business loan or line of credit, or strategically leveraging cash rewards on select credit cards, an infusion of cash for operating expenses can help level out the money-in versus money-out challenges if your cash flow cycle is a bit longer by nature or is impacted by outside factors.

Assemble a team consisting of your banker, accountant and other advisors to identify your business’ needs, set up cash flow forecasting, and the best approach to manage liquidity. Through these efforts, your long-term solvency can see an uptick too.

Cash Management & Payments

Half the battle with cash flow and keeping capital levels in a healthy place is efficient accounts receivable and accounts payable methods. There are simple steps you can take for each that can help the day-to-day management of cash flow easier.

• Accounts Payable: Pay electronically using your bank’s bill payment service and connected accounting software. Also set up ACH and wire transfer services to pay vendors electronically, and consider using small business credit cards for some vendors, building credit for the business and even generating incoming cash flow through rewards.

  Be sure to spread out your payments, prioritizing as needed to ensure your supply chain and service needs are met while maintaining healthy liquidity levels.

• Accounts Receivable: There are several ways you can leverage your bank’s merchant services, business banking and technology advances to increase cash flow and capital levels. Make sure you accept convenient payment options for your customers, and if you don’t know for sure, ask them! Your regular customers or clients may have great feedback on what makes it easier for them to do business with you.

  If your small business uses point of sale (POS) for payments, accept several forms of payment, including cash. If your business is cash heavy, smart safe technology may be a consideration to deposit large sums of cash safely and efficiently into your business banking account.
  If your business uses invoicing, invoice right away when possible, aiding in getting paid for when your products or services are sold rather than closer to when you need to replace inventory or other supply chain needs that are critical to your business operations.

Even the healthiest businesses should look at their short- and long-term capitalization at least mid-year and again when planning for the following fiscal year. And if you are unsure of a long-term direction or are experiencing short-term liquidity, cash flow or capital challenges, sit down with your team as soon as possible to map out a revised plan for your small business.