Best Practice

Cash Flow is King

Tips for Small Businesses

Small businesses may be as different as night and day in terms of the products or services they offer, but financially speaking, they all have one thing in common: cash flow is king.

Although cash flow is a key indicator of financial health, many companies struggle with knowing exactly where they stand — and how to gain a more stable position. That is particularly true for those without a chief financial officer overseeing the books.

The good news is community banks can help with everything from evaluating capital needs, to providing loan options, to offering guidance in financial management. These banks also have a vested interest in their communities and in the success of the companies that energize our local economies. 

According to the 2016 Small Business Credit Report by the Federal Reserve, banks are the most common source of credit for small firms. But the report also noted “borrower satisfaction among all [loan] applicant firms is highest at small banks.” 

That is quite an endorsement of community banks (small banks by the Fed’s standards) from small business operators across the nation.

Over my 25 years in banking, I have helped dozens of small businesses set up cash management procedures that fit their unique needs. Based on my experiences, here are some cash-management suggestions for small business owners:

  • Know your cash flow demands and how you will meet them. Do you need to purchase equipment, add inventory, expand your facility or hire a new employee? You will need positive future cash flow to pay for these expenses, so it is important to factor them into your overall financial picture.
  • Tailor your banking needs. Your banking relationship should be customized to help your company meet its financial obligations and goals for growth. What kind of accounts will your company need? Money market, checking, escrow, lines of credit, credit card processing services?  Your community banker can help structure the financial side of your business while also ensuring you do not pay for unnecessary products.   
  • Use the most appropriate form of credit for the expense. This could be a revolving line of credit for short-term cash needs like paying vendors and employees, or a more substantial and longer-term financing instrument, such as a Small Business Administration loan or a mortgage for a capital improvement or acquisition.
  • Consider your merchant service providers. Fees can vary widely among credit card processing vendors. Depending on your sales volume, you may be able to comparison shop for and find a more cost-effective option.
  • Know your tax obligations. When determining your cash flow needs, do not leave tax payments out of the equation. While how you file your taxes is between you and your accountant, how you ensure having enough money to pay them needs to be addressed when determining your usual cash flow needs.
  • Pay your employers and vendors electronically. It is the best way to track your funds and get an accurate picture of monthly cash flow.
  • Use mobile and online banking services. Mobile banking apps like Axiom Bank’s app allow you to deposit checks and transfer funds from accounts using your smartphone. We are seeing more small business owners taking advantage of the conveniences and expediency of remote banking.

After getting your company’s financial house in order, make a point to revisit your community banker in six months to a year for a follow up. When it comes to profitability, improving and maintaining your cash flow can offer the keys to success.

Trisha Delatte, Axiom Bank

Trisha Delatte is vice president, Treasury Management at Axiom Bank, N.A., the second-largest community bank in Central Florida. She can be reached at tdelatte@axiombanking.com or 321-316-4394.

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