You are now reading:
A guide to cash flow management for new entrepreneur
Healthy cash flow is key to any successful business – every company needs sufficient liquidity to pay suppliers and fund day-to-day operations. This is especially so for new entrepreneurs, who might incur more capital expenditure in order to kickstart their new ventures.
In the UOB Business (SME & Large Enterprises) Outlook Study 2023, Singapore businesses cited reducing costs and managing their cash flow as priorities amidst higher inflation. And in the recent Singapore Budget 2023, the Government has introduced schemes to help businesses access capital and drive growth.
In understanding businesses’ need for stronger support, UOB has also designed offering such as the UOB SME app, an app that helps entrepreneurs stay on top of their business on the go, including features such as an interactive dashboard that allows business owners to view their cash flow in real-time, and for the last six months.
To help you manage your cash flow more efficiently, we have structured business cash flow management tips into four main areas of focus.
- Cash flow refers to the net amount of cash that a business receives and spends over a certain period.
- Cash flow activities can generally be placed into three categories:
- Operations, which includes sales revenue, supply costs, and payroll
- Investing, which involves assets like property and stocks
- Financing, which covers debt, equity, and dividends
- Positive cash flow isn’t necessarily equivalent to profit. While your business might turn a profit on paper, your bank balance might still face a cash crunch because your receivables are overdue.
- Cash flow management is hence the process of tracking, analysing, and optimising these inflows and outflows in order to avoid a shortage in cash.
Manage your cash flow with more confidence with these five actionable tips:
1. Set a lean budget by understanding cash flow trends
To avoid overspending during periods with more cash and running into a cash crunch, it is important to stick to a lean, disciplined budget based on your business goals.
A good budget should serve as a roadmap to your long-term business plan, helping you find a strategic balance between spending and saving.
To set a realistic budget, you can start by analysing financial data from previous months to estimate your expenditure and earnings, as well as identify cost-cutting opportunities.
In understanding the needs of SMEs, the UOB SME app offers a useful tool for managing your budget by providing an overview of your financial performance. Through the interactive dashboard, you can track your cash inflows and outflows over the last six months at a glance, and even get personalised recommendations for improving your cash flow.
2. Review your cash balance forecasts regularly
Chances are that if you’re a business owner, you are already keeping a sharp eye on your monthly account balance, but this may not suffice for effective cash flow management.
Rather than just checking your current cash position, you should also forecast your cash position in months ahead for a fuller picture of your financial health.
You can count on digital tools within the UOB SME app to perform cash balance forecasting at a tap. By linking your banking data with UOB’s accounting partners, get a personalised Cash Balance Forecast of your cash position up to 90 days into the future based on factors affecting your cashflow, such as account receivables and payables and average operating expenses.
Having a clear forecast empowers you to take action before potential cash gaps derail your business growth. For instance, you can consider securing a business loan to gain more working capital. Government-assisted loans like the SME Working Capital Loan offer preferential interest rates with no collaterals required, enabling you to bridge your cash flow gap simpler and faster.
3. Time your payments strategically
One strategy to manage potential cash gaps is by planning your payments and expenses prudently. While it might seem convenient to settle all your payables on the same day each month, this is seldom ideal for cash flow management.
If you foresee a short-term cash bottleneck ahead, it may be possible to negotiate extended payment terms with your suppliers and spread out your expenses.
On the other hand, if your cash flow forecast is looking healthy, you can check with your suppliers for early payment discounts and achieve cost savings.
4. Stay on top of invoicing
Overdue invoices are a common cause of cash flow disruption, leaving businesses struggling to cover operational expenses and pay suppliers on time. This points to the importance of smarter invoice management for a healthy cash flow, from invoicing your customers promptly to using progress billing. Digital tools can take the pain out of your invoicing process by automating invoice creation, sending personalised reminders, and making it simple to track payment schedules.
Through the UOB SME app, SMEs can tap into UOB BizSmart’s suite of digital solutions, including accounting software designed to help small businesses work efficiently.
The app displays top customers and suppliers who are your critical business partners, to help you stay on top of invoicing matters.
5. Manage your inventory well
Poor inventory management often leaves your cash tied up in excess or wasted goods, impairing cash flow and saddling you with unnecessary costs. By tracking your inventory levels in real-time, you can order products only when necessary and maintain efficient turnover, freeing up your cash for other business needs.
Entrepreneurs can tap into smart tools to automate many inventory management processes, such as monitoring stock across multiple channels and forecasting customer demand.
The good news: you’ll find inventory management software among UOB BizSmart’s arsenal of digital solutions as well, enabling you to manage multiple business processes in one seamless platform.
Simplifying cash flow management with the UOB SME app
Cash flow poses a complex challenge for first-time entrepreneurs, but you can leverage digital tools to keep your cash flow positive. Get started by downloading the UOB SME app here.
