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What are effective strategies for managing cash flow in a small business?
Asked on Feb 19, 2026
Answer
Effective cash flow management is crucial for the sustainability and growth of a small business. By understanding your cash inflows and outflows, you can ensure that your business remains solvent and can meet its financial obligations.
Example Approach:
- Step 1 – Identify the financial or business objective: Maintain a positive cash flow to cover expenses and invest in growth opportunities.
- Step 2 – Apply the appropriate calculation, process, or decision rule: Use cash flow forecasts to predict future cash needs and adjust operations accordingly.
- Step 3 – Review results and adjust based on real-world constraints: Regularly monitor cash flow statements and adjust payment terms, inventory levels, or pricing strategies as needed.
Additional Comment:
- Consider using budgeting tools or software to track and project cash flow.
- Negotiate favorable payment terms with suppliers to improve cash flow timing.
- Regularly review accounts receivable and follow up on overdue invoices promptly.
- Maintain a cash reserve to handle unexpected expenses or downturns in revenue.
- Explore financing options like lines of credit to bridge temporary cash flow gaps.
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