7 Practical Tips to Improve Cash Flow for SMBs and Entrepreneurs.

Cash flow is the cheapest source of funding you’ll ever have if you manage it. Get all you need to know, from payment times, cash flow forecasts, cash limits, to investing in an extra buffer.

Most SMBs and entrepreneurs think that “more cash in the bank = safer growth.” But in reality, idle cash can slow you down. The best companies utilize tight cash flow management. Here are our six practical tips anyone can use to improve a company’s cash flow.

Monitor Cash Runway

The cash runway tells you how many months your business can continue operating before it runs out of cash. It’s a critical metric for SMBs and entrepreneurs because it shows whether your current cash and expected inflows can cover your planned outflows.

As a rule of thumb, a runway of 12 months or more is considered safe, while anything under six months is risky. The right target depends on how predictable your cash flow is. The more uncertainty in sales or expenses, the longer the runway you should maintain.

Example:

For a startup or scaleup, if your product isn’t yet generating significant sales while staff costs are high, it’s critical to maintain a long enough runway to complete your next funding round without pressure.

For an established SMB, the runway can temporarily be short, for instance, after profit distribution, as long as the business can generate cash from ongoing sales. However, if you plan new investments, the runway can quickly become critical, and shortfalls must be addressed proactively.

What is Optimal Cash?

The common myth is that optimal cash means holding a big buffer in the bank account. In practice, a big buffer is expensive. It usually means two things: you’re paying interest on loans you don’t actually need, or you’re missing opportunities to invest in product, sales, or hiring.

A good rule of thumb is to keep just enough to cover a month of needs, and invest the rest in money market investments, make extra loan repayments, or deploy the rest back into growth.

Example: If your monthly burn is €200k, a €300k buffer is safer than €1M sitting idle. That extra €700k should either reduce debt or fund growth initiatives.

Understand Payment Terms: The Invisible Loan

Think of cash flow as fuel: the faster it moves, the better for your cash flow. This means invoicing immediately when value is delivered instead of waiting until the end of the month. It means spending behind income, not ahead of it: don’t commit to big costs until the revenue is in. It also means negotiating supplier terms: every extra 10 days you gain frees up cash without debt.

When your customer takes 60 days to pay, you’ve essentially given them a 60-day interest-free loan. Multiply that across dozens of invoices, and you’re financing their business instead of yours.

There are two levers to pull here. The first is reducing late payments. Systematic late payment reminders, small discounts for early settlement, and refusing to extend terms to chronic late payers all help. The second is shortening your standard payment terms so that your customers pay you faster than you pay your suppliers.

The golden rule of payment times that large Nasdaq-listed companies use in their cash flow management is to get paid before you pay.

Example: If you pay suppliers in 30 days but only collect in 45, you are constantly covering a 15-day shortfall. On €1M in annual sales, that’s about €41k tied up in working capital.

Have both Short- and long-term cash flow forecasts

For SMEs and entrepreneurs, it is essential to look ahead and get a clear picture of how cash flow will move over the coming weeks and months. The bank account only shows today's balance, not upcoming payments, customer receipts, or seasonal swings. A cash flow forecast built for the CEO:

Most SMEs follow the coming weeks' cash forecast in their accounting software. This is a very good way to track the short-term forecast based on open sales and purchase invoices. It is worth adding VAT, salaries, and any overdue customer payments on top.

Want to hire two people in the first quarter and buy a machine in the second? Well planned is half done. You can plan and track the coming months' cash position at a daily and weekly level with a ready-made Excel template, or without spreadsheets using Riskrate automation. You can forecast sales, purchases, salaries, investments, loan repayments, and taxes automatically. Update your bank account data and see your cash flow forecast.

A cash flow forecast for the bank, usually a monthly cash flow forecast:

New orders confirmed! 🥳 The warehouse is running out of space, and the machinery needs renewing. Growth requires a loan, and the bank expects the figures by Friday at the latest. This calls for a cash flow forecast based on the company's income statement and balance sheet.

Build a detailed cash flow forecast with Riskrate directly from general ledger data. Factor in receivables and payables turnover, financing needs, and inventory levels. Add your budget and compare scenarios A, B, and C before the bank meeting.

Cash Limit as a Daily Buffer

Your bank’s cash limit acts as a daily buffer. Think of it as short-term insurance: you pay a small sign-up fee plus interest on any negative balance days to your bank. Use it wisely to cover short-term gaps, not funding long-term growth.

Level Up With Cash Pools

When your business expands into multiple entities, liquidity often gets fragmented. A cash pool allows you to treat group balances as one. Large companies use this to optimize liquidity, but mid-sized SMBs can benefit too.

Example: One subsidiary has a €200k surplus and another runs a €150k deficit. Without pooling, one entity earns little to no interest while the other pays for a credit line. With pooling, the surplus and deficit cancel each other out, reducing the need for external funding.

To set up a pool, map your flows (incoming payments, salaries, supplier costs), collect real volumes, and request proposals from several banks. Decide upfront whether you need a single-currency pool (EUR) or a multi-currency structure.

SMB Cash Flow 5-Step Checklist

1. Set the right buffer: Keep 3–6 weeks of expenses in cash, not months.

2. Tighten payment cycles: Collect faster than you pay suppliers.

3. Invoice immediately: Don’t let revenue sit unbilled.

4. Centralize liquidity: Use cash pools if you run multiple entities.

5. Forecast smart: Use monthly bookkeeping for the big picture, and daily forecasts for a short-term overview.

Supercharge Your Cash Flow with riskrate

With riskrate, getting a clear view of your runway and cash flow forecast is as easy as a click. Instantly see how long your business can operate without running out of cash, track upcoming inflows and outflows, and make informed decisions with confidence. We'd love to serve you. Book a free demo with our team here or run your first report with a click here.

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