There are promising signs for entrepreneurship and small businesses this year, but cash flow pressures remain.

2015 is set to be a key year for small companies. It’s a great time for raising finance too. With options ranging from new crowdfunding platforms, both equity and debt based, to companies providing working capital options, companies no longer have to rely so much on the ever-reluctant banks to lend them the money they need.

Managing Cash Flow

Nevertheless, there are challenges up ahead. For example, the retail sector continues to pose challenges in an era of massive competition and pressure on brick and mortar shops from online operators.

Also, businesses across all sectors can still be hampered by cash flow issues. For as long as late payment is rife across the supply chain and large operators are bullying smaller suppliers into accepting their unreasonable payment terms, such small companies will struggle to pay their own suppliers on time – not to mention find the cash to grow their company.

Every day new entrants throw their hat into the ring of entrepreneurship. And every day several die off. Many of these entrepreneurs, after spending considerable time fine-tuning their business plan, find themselves scratching their head, wondering why their company, with its innovative product or service, suffered such a fate.

In a great many cases, the answer is easy: cash flow.

Cash flow is the lifeblood of a business and critical in its growth. With money tight and bank loans hard to get, a cash-strapped company can easily be pushed to the brink.

The lesson that entrepreneurs must master immediately is that a business cannot operate very long when cash outflow exceeds cash inflow. Every business, particularly a startup, must zealously monitor its cash flow to prevent a serious business disruption. In business, cash is king and cash flow is priority # 1.

A significant percentage of cash-flow issues result because owners have not spent adequate time estimating the arrival of various revenue streams and balanced that against their need to pay certain expenses. Entrepreneurs must realize the critical importance of calculating accurate cash-flow projections to address day-to-day activities.

Owners who don’t thoughtfully estimate their cash flow for an upcoming period (the day, week, month and quarter) place their business at serious risk.

From Day 1 businesses must track and manage their cash from the time that they must pay vendors, employees and others and the time that they collect from their customers. Doing anything less assures near certain failure. The following tips can help business owners ensure that their cash flow is managed well and not placing the business at risk of failure:

Create A Budget

Business owners should sit down to thoughtfully estimate expected cash inflows and outflows. Factors that to consider include the sales cycle, terms and discounts provided customers, industry delinquency rates and other factors that may affect the timing of incoming cash.

Similarly, it is necessary to estimate expenses and other cash outlays. This includes the timing of the purchase of equipment, raw materials and supplies.

It also includes the schedule for payment of salaries, taxes and other day-to-day expenses. SCORE, a national non-profit support group for small business owners, provides a free budget template that business owners can use to manage their cash flow.

Monitor Results

Examining the budget should not be an infrequent activity. On at least a monthly basis (but more frequently if warranted), the actual cash flow should be compared with the budget to work out the kinks in the system.

If cash inflows are less than anticipated, figure out the reason for the shortfall. If cash outflows end up being greater than expected, understanding the cause is also important.

Once the reasons for the budget variances are determined, the business can make the necessary corrections, either to the budget or the business plan or both.

Always Have Plan B

Regardless of the amount of time and energy a business owner devotes to creating a budget, unexpected events can suddenly crop up, wreaking havoc on even the best cash-management system. During such times, the business might need to rely on a contingent source of cash to keep the operation running until things return to normal.

Typical sources of contingent funding include lines of credit, personal assets and friends and family. Business owners should have a Plan B lined up well before the funds are needed.

For example, a business owner who plans to borrow funds to cover a cash shortfall should have the loan or a line of credit in place well before the cash is needed. Allowing a cash-flow disruption to occur before applying for a loan is asking for trouble as most banks will hesitate to lend money to a business in distress.

Even if a bank were willing to extend a loan, few financial institutions can underwrite and approve a request in less than a month. By then, the business may have already failed due to its inability to cover its cash needs.

Establish Efficient Billing System

A key element of cash-flow management is controlling the timing of funds coming in and going out. It may be customary, depending on the industry, for a business to extend credit to purchasers.

For example, customers may be extended a 30-day period to furnish payment. Every time this type of transaction occurs, it places a strain on the business. While the buyer need not provide payment for 30 days, the company must continue to meet its financial obligations.

The easiest tactic for a business to pursue is to bill a client immediately. Businesses that make sales on credit must ensure that the invoice is delivered within 24 hours of the transaction.

Furthermore, companies should track their invoices and send reminders before the payment-due date. Businesses that delay invoice delivery will likely receive their payments late due to the processing time required by the buyer. Business owners should consider delivering invoices by email to ensure rapid and certain delivery of billings.

Set Payment Policies

A sound cash-flow management strategy calls for rapid collection of invoices and timely payments. This means that the business should not pay its bills ahead of time — or late. The company should pay its bills when they are due. This ensures that its cash is working hard.

To the extent that the organization is flush with cash, managers should ask for a cash discount at the time of a purchase instead of buying on credit. The offer of a cash payment may entice the seller to offer a discount. This can be especially beneficial in cases of big-ticket purchases where a discount can be meaningful.