Small Business Cash Flow: Strategies for Success

November 26, 2021
Woman looking at her cellphone while working. Sandy Spring Bank

Cash flow is the lifeblood of any small business. Simply put, it is the money that flows in and out, enabling you to pay your vendors, your employees, and meet your financial obligations. But your cash flow needs can change based on the season, the growth of your business, or an unexpected event, which is why advance planning is a must.


Understanding your cash flow needs

Managing cash flow fluctuations throughout seasonal or slow business cycles ensures that you are always able to meet financial obligations. To know how much cash you need and when, business owners must create a cash flow plan that outlines how much cash you need to have on hand, so you don’t run into financial issues.

Given the post-COVID scenario we’re all facing, your business’s cash flow needs may have changed over the past year and a half. At Sandy Spring Bank, we work closely with our clients to determine how their cash flow impacts their business in both the short term and long term, providing advice and guidance to help you create a customized plan to make more informed, strategic decisions. Therefore, it’s critical to properly forecast and plan for unexpected cash flow issues.

Ways to manage your business cash flow

There are several ways for businesses to manage their cash flow. Depending on the size of your business, it might make sense to keep a set amount of cash on hand in reserve to manage cash flow fluctuations internally. Doing so can help you stay afloat if some of your customers don’t pay on time – business owners can use their cash reserves to meet those short-term financial commitments. This cushion can help you avoid business interruptions if something out of left field happens.

However, for many small businesses, the cash flow cycle is more volatile. You might have one great month where money is flowing, followed by a light month where cash isn’t as accessible. This is where a line of credit can be extremely beneficial. A line of credit can plug the cash flow hole and help you manage the timing of collections and expenditures, giving your business a financial backup to draw on short term. That way, you can focus on growing your business without missing important payments.

Client advocacy

When it comes to creating a cash flow plan for your business, having a solid relationship with a bank is a must. At Sandy Spring Bank, we listen to the specific circumstances of our small business clients and design a financial solution that works for them. While every bank, regardless of size, has its own formula and amount of risk they’re willing to take, a community bank like Sandy Spring Bank often can offer a customized solution, which can create more certainty and less stress for small business owners.

  • Example:
    A local trucking company was seeking a new bank to help manage their seasonal cash flow fluctuations. The company had been profitable for more than 20 consecutive years and had a solid financial track record. Still, their existing bank had instituted numerous restrictions and covenants that this company needed to meet to keep their line of credit. This made it very challenging for them to meet their financial obligations due to the seasonality of their business. Sandy Spring Bank listened to the company’s challenges and provided a line of credit that provided greater availability and was simpler for the client to manage. And most importantly, they are now easily able to keep both their employees paid and financial obligations met, all year round.

One of the keys to managing your cash flow is working with a bank that understands your business. Sandy Spring Bank knows what it takes to build a business in our community, and we have the banking tools to help you do the same. To discuss banking solutions for your business, contact us today by calling one of our business banking representatives at 866.867.1570.

This material is provided solely for educational purposes and is not intended to constitute tax, legal or accounting advice, or a recommendation for any particular transaction.