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4 Ways to Help SMBs Manage Cash Flow

Posted September 06, 2019 by Vertical IQ

You may have heard the platitude, “Cash is the most important, yet least productive, asset a business has.” It is a bit cliché, but it is also true. Properly balancing the so-called “big three” of cash management—accounts receivable, accounts payable, and inventory—is crucial to the financial success of any business. 

Managing SMB cash flow

Small to mid-sized businesses (SMBs) are especially susceptible to the effects of the fluctuations of cash balances due to their cash management cycle. For example, the number of days it takes a company to convert its investments in inventory into cash from sales is critically important to its success. That’s why you, as a professional services provider helping SMBs, have a tremendous opportunity when it comes to helping your clients implement cash management solutions that improve their business.

And this extends way beyond just bank products. A cash management solution is anything that increases the efficiency and cost effectiveness of a company’s financial processes. It could be investments such as software, services, or a better system for managing their workflow. Could be helping the business find efficiencies like ways to speed their receivables.

But you can also help your SMB clients and prospects by sharing specific information about how cash flow impacts others within their industry, and ways competitors are improving their cash management cycles. Your clients may not even be aware of the extent to which cash management issues are disrupting their operating cycle! 

Ways to use information for better cash management

Here are some specific tips on how to better understand your client’s cash situation. 

  1. Study the financial statistics: For example, “Cash to Total Assets” is a financial benchmark that allows you to rank an industry based on its cash-intensity.
  2. Understand how working capital works for a particular industry: 
    • Uncover how gross margins compare to sales. 
    • Understand if seasonality is responsible for fluctuations in revenue as well as the revenue mix. 
    • Consider the average collection period and its impact on receivables. 
    • Learn how long it can take a startup in the industry to become profitable. 
  3. Study the internet: Do a keyword search to find articles you can share with the business owner that relate to topics such as selling and invoicing, collections, managing cash, making payments, and reporting.
  4. Ask better questions: These questions can help deepen your conversation with the business owner and further your understanding of any discrepancies that might surface as they relate to their peers. For example: 
    • What challenges do you face in ensuring timely billing for client work? 
    • What is your average collection period? 
    • What challenges do you face in managing cash? 
    • Do you ever sell your receivables? 
    • What is your average billing rate?
    • What is your sales forecast and expected growth rate over the next 5 years?

>> Related: The 3 Local Economic Indicators Every SMB Advisor Should Know

Help solve cash management problems

Effective cash management is one of the most important aspects of running a successful business. By reviewing this information on your client’s or prospect’s industry, you will feel more confident about your ability to add financial value to your SMB relationships.

>> Ready to learn more about how you can help improve your client’s cash management processes? Visit https://verticaliq.com/ to get started for free today!

Tags: banking, industry knowledge, local economies, small business owner, business owner, advisor, cash flow

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