Tips to managing cash flow

Financial experts share best practices for a new year.

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If businesses learned anything from 2020, it was to prepare for the unexpected.

According to a few of the region’s financial experts, the best way for any business to prepare financially for unforeseen circumstances – and maximize profit during the best of times – is to use best practices managing its cash flow.

Properly managing cash flow should be practiced all year long, but some businesses over the past several months have had fits and starts because of the challenges caused by the coronavirus pandemic.

The experts say that now, at the beginning of another calendar year, is a good time to revisit those best practices.

Something first must be understood: Cash-flow management is a broad topic with many variants; since every business is different there is no cookie-cutter answer to the specifics of how a company should manage its cash flow.


“That’s a big topic,” said Matt Jacobson, lead business advisor at Alerus in Grand Forks, N.D. “No one is going to understand a business's financials better than the owners or key leaders themselves.”

But, he explained, there are basic strategies that may apply to every business – the best practices of planning, projecting, budgeting and managing.

Planning and Projecting

“It’s tough to meet goals if you're not setting them,” Jacobson said.

The cash flow statement of any business starts with a company’s net income and includes depreciation and amortization, or non-cash flow expenses, according to an article by U.S. News & World Report . The company then works through adjustments made throughout the year to come to its actual cash flow.

Because of the economic uncertainty over the past year, many businesses have had to reevaluate their expenses. Owners and managers have had to rethink their approach to cash flow – their resources and revenue streams – and how to manage it during difficult times. In many instances, businesses have had to re-learn and re-plan. Some may have decided not to start or complete projects in order to save money, while others may have expanded because the demand for their product and/or service accelerated.

“2020 has forced a lot of businesses to evaluate expenses. We could be talking about employees working from home or scaling back the company’s holiday party, for obvious reasons, but they all come at an expense. I'd say that will likely continue,” Jacobson said. “I think this all ties back to putting together budgets and things of that nature, and then managing them.”

The experts at Gate City Bank echoed the same sentiments.


"2020 has taught us to be flexible and adaptable,” said Chris Lee, Gate City’s chief financial officer in Fargo, N.D. He said a good question to ask is, “What other options do you have for your business? Are there things your business can provide that didn't exist before? Are there areas of your business, where there is currently no demand, that need to be rethought or restructured? What is this different world going to look like? What kind of changes are people going to continue to stick with and how does your business adapt to those changes? These are all important questions to answer in directing you forward."

Budgeting and Managing

Planning and maintaining a budget also is important to manage cash flow.

“We recommend a strong budgeting practice,” Lee said. “Budget for the next year and develop contingency plans so, if things don’t go the way you anticipate, you know what you are going to do, how you are going to adjust and how you are going to maintain success. Having a strong plan going into the new year, thinking about what your options are, or where there might be demand for your products or services, will allow you to be flexible and adaptable so you can be successful.”

Companies that juggle the supply and demand of inventories should especially focus on a year-long plan. That might be tough in some cases, but it “should be something that is looked at as businesses plan for 2021,” Jacobson said.

Some questions a company might want to ask include: What's the lead time on my inventory? And, how does that tie to the sales cycle and my cash-flow cycle?

“Knowing the numbers, knowing where revenue is derived and where the expenses are incurred, I think, is important,” Jacobson said. “If you're going to be able to trim something or look to scale things back to improve cash flow, where do you go? I think it's critically important, especially as we look to start another year, that people prepare projections.

“Coupled with that is being able to review and understand the expenses that you're going to incur. It costs money to generate revenue. Marrying those projections with the appropriate inventory level is important. … Many businesses are seeing spikes, they're seeing drops. Some products are not selling as quickly as others, and understanding where you can maximize not only revenue, but profitability is important.”


Kevin Warner, senior vice president of Business Banking with Gate City Bank, said it is imperative for companies to stay on top of their billing cycles.

“A best practice is to collect receivables as soon as possible,” he said. “Get your billings out in a timely way so you can get those payments in quickly.

When times are good a business might not collect on their receivables as soon as possible, but during more challenging times they look at those things a little more closely and more frequently.

“If you know there is going to be a slow payment coming in, work with the client. Especially for small businesses with a few customers, it’s important to get those payments in,” Warner said. “Consistently managing cash flow and seeing what's going in and out is important because that allows you to monitor trending and address problems sooner rather than later.

“Continued cash flow management is important, whether it’s weekly or monthly.”

Seek Expert Advice

For those businesses that might need a little help, there is plenty of it available. Lee said it is a good idea to reach out to a financial expert early in the planning process and then revisit topics with the advisor from time to time throughout the year.

“It's a good idea to reach out to your banker early on to see what your options are if there is something you think you’ll want or need,” he said. “Reach out to them at the beginning [of planning] and discuss your ideas with them. Bankers want to help their clients, so leverage that relationship. We encourage our customers to visit with their banker ahead of time so they can be a helper and a trusted advisor.

“We've seen a lot of customers rely on their relationships with their banker to help them navigate changes and government stimulus programs. Since we know their business, and work closely with them, it's a good partnership that allows us to give advice specific for their businesses.”

Andrew Weeks may be reached at 701-780-1276 or aweeks AT

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