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Small Business Cash Flow is Vital to a Venture’s Long-Term Success or Failure

Owning a business can come with many incentives: financial independence, a flexible schedule, community support, job creation and so much more. But, it also comes with risks. A big one is cash flow. According to a study performed by Jessie Hagen for U.S. Bank, 82% of small businesses fail due to poor cash flow management. 

Additionally, business analytics platform CB Insights cited a startup’s inability to properly manage cash flow as the number one reason for its demise. Such statistics highlight the critical importance of successfully managing cash flow for small businesses.

What is Small Business Cash Flow?

Small business cash flow is the movement of funds coming in (revenue, income) and going out (expenses) of your business’s bank account. If the expenses exceed the revenue and income (negative cash flow), your venture may struggle and, ultimately, fail. However, if income and revenue outweigh expenses (aka positive cash flow), your business has a greater chance of success. 

When determining your small business cash flow, it’s important you understand the difference between accounts receivable (AR) and accounts payable (AP). Accounts receivable tracks the amount of money coming into the business. 

AR typically accounts for the money customers pay you for your products or services. 

AP refers to your company’s liabilities. This includes the money that is leaving your business and what you owe. This can include business loans, credit card payments, operating expenses and utilities, payroll and more. 

Why Managing Cash Flow is Important

Managing cash flow should be a top priority for every small business. The state of your cash flow can make or break your business in the short and long term. Maintaining positive cash flow is integral to growing your business and meeting your financial commitments. Ensure you have enough cash on hand to pay bills as well as improve business operations with strategies such as new construction, equipment purchases, marketing and advertising, staffing and more. 

If you can’t easily get your hands on cash, it’s going to be difficult to pay loans or bills on time, leading to late fees and additional interest. Cash flow is also one of the major financial health factors lenders will review to approve or deny a loan. If your business demonstrates positive cash flow, there’s a higher probability of securing a loan. 

Although managing cash flow is such an integral aspect of any business, it is not an easy feat. Not only should you aim for positive cash flow, but also you should attempt to control the pace and timing of that cash flow. 

Ensure AR is receiving payments on time. Ensure AP has enough cash on hand to put money aside for all expenses – both expected and unexpected expenses. Essentially, AR and AP must be in sync so that income entering the business is ready and waiting to exit the business when needed. 

5 Tips for Improving Small Business Cash Flow Management 

Here are some excellent tips for small business cash flow management:

• Understand the Cash Flow Cycle

The cash flow cycle runs from the time an entrepreneur purchases the materials necessary to create a product or provide a service, and it runs through the time of the collecting payments. Keep track of your income, expenses and the cycle by using cash flow statements. Review those documents to adjust any inconsistencies or potential cash flow problems. For instance, you may need to collect payments earlier in order to pay a bill. 

• Ensure Customers Pay on Time

Although it may be uncomfortable to ask customers for payment, be proactive about it. To avoid awkward conversations, automate the payment process with invoicing software, such as QuickBooks for small businesses, or send email reminders. If these don’t work, you may have to pick up the phone or contact a collection agency.

• Turn Over Inventory

To improve your cash flow, turn your inventory more quickly by increasing sales. Cutting down on the amount of money you have tied up in inventory frees your businesses’ cash. 

• Negotiate with Vendors & Customers

Negotiate with the accounts receivable and payable of other companies. For instance, you can request shorter payment terms with your customers or longer terms with your vendors. It never hurts to ask!

• Consider Invoice Financing or Cash Flow Loans

There are additional ways to manage your cash, including invoice financing and cash flow loans. Invoice financing involves working with third-party companies to obtain an advance (total or partial advances) on outstanding invoices. A cash flow loan is typically a short-term, high-interest loan or line of credit business owners use to cover expenses. 

Using these tips and strategies will go a long way in helping you improve your small business’ cash flow. Just remember: This is never a “set it and forget it” endeavor. Properly managing cash flow requires constant oversight and discipline. But the fruits of that labor can be significant! 

About AVANA CUSO

Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO offers competitive commercial real estate loans. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire loan process. AVANA CUSO is a proud member of the AVANA Family of Companies.

About 60 million people live in rural communities throughout the country. Rural dwellers’ inconvenient distance from financial hubs and their unique financial needs mean they often look for specialized support. 

As such, there are a number of savvy credit unions that specifically serve the needs of this large population. And, they serve them better than standardized banks or other financial institutions that don’t have a specialized rural focus. 

The employees of rural and agricultural credit unions understand these lifestyles and communities on a firsthand basis, so they can provide more personalized service to the people who live in such areas. 

These CUs offer such high-quality services and specialized financial products given their expertise in rural communities and their financial needs. Plus, they typically and wisely partner with a seasoned credit union service organization (CUSO), such as AVANA CUSO. AVANA CUSO has decades of experience partnering with credit unions across the country to help diversify their lending portfolios and better serve their members. 

Here our financial experts have compiled the top credit unions in the United States that serve rural and agricultural communities. 

History of Credit Unions

Before we review some of the top rural and agricultural credit unions of today, it’s worth highlighting the history of credit unions altogether. 

The first credit union was established in 1864 by Friedrich Raiffeisen, the mayor of a small German village. He set out to create a rural cooperative by compiling capital that he could distribute as loans to those in need of funds. 

Raiffeisen largely created his innovative financial institution to aid poor farmers in the region due to his strong belief that credit unions would be a conduit for social and community change. As we know, he was right. 

The spirit of community-first banking solutions still rings true across the credit union industry today. The following list of credit unions continues to advance their rural and agricultural members with many of the same values on which Raiffeisen founded the first-ever CU. 

1. Agriculture Federal Credit Union

Based in Washington, D.C., and serving members across the country since 1934, Agriculture Federal Credit Union (AgFed) aims to provide members with financial services of the highest quality. 

People are eligible for membership if they are in the D.C. area or are part of one of the Select Employee Groups (SEGs), which includes the U.S. Department of Agriculture, the American Crop Protection Association, the Agricultural Cooperative Development International and dozens of others. 

AgFed offers auto loans, credit cards, home equity loans, checking accounts and more to help professionals in the agricultural field meet their financial goals. 

2. Rural Cooperatives Credit Union

The Rural Cooperatives Credit Union was founded in 1964 and aims to assist members in realizing their personal financial success through competitive and value-oriented products and services. 

They pride themselves in the way they give back to their members and rural communities while still being a full-service financial institution. Their main products include low-rate loans and convenient checking accounts that have no monthly maintenance fees and free in-network ATM withdrawals.  

To become a member of the Rural Cooperatives Credit Union, you must be an employee of or family member of an employee who works for Electric Cooperatives in Kentucky, Ohio and Tennessee or be a member of a number of other energy and utility-based professions in these states. 

3. Heartland Credit Union

Heartland Credit Union is based in southwest Wisconsin and serves members primarily across rural Wisconsin, Iowa and Illinois. Heartland is focused on preserving rural America and supporting its customers in the agricultural industry through cost-effective financial services. 

The credit union opened in 1936 and, aside from personal and business banking solutions, they also offer agricultural financial products, including personal farm property, real estate, operating lines of credit and FSA-guaranteed loans to help farmers in their area. 

About AVANA CUSO

Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial lending. For decades, we have partnered with credit unions across the country to offer competitive and collaborative loans. We also uniquely support and guide our partners through the entire lifecycle of our loans. AVANA CUSO is a proud member of the AVANA Family of Companies.

Avana Companies are pleased to announce the closing of a $5 million loan package with an established vertically-integrated cannabis operator based in Massachusetts. The well known brand will use the funds to further accelerate its growth.

The organization has a proven track record and operates a 70,000 square foot cannabis cultivation facility coupled with on-site and off-site retail dispensary storefronts that serve both medical and recreational cannabis markets.

AVANA is proud to help and support the growth of this cannabis business and other cannabis businesses across the nation.

AVANA cannabis financing and dispensary loans empower entrepreneurs to navigate the challenges of the cannabis industry through reliable, flexible, and affordable solutions. We want entrepreneurs to reach their full potential and succeed in their cannabis business ventures.