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 forecast, cash limits, to investing an extra buffer.

The money is tight these days. 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.

1. Monitor Your Cash Runway.

The cash runway tells 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.

2. 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 need, 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.

3. Understand Payment Terms: The Invisible Loan.

Think of cash flow as fuel: the faster it moves, the better to 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.

4. Invest Excess Cash Wisely (Board Approval Required).

Once you know your forecasted cash needs, decide where to keep your cash based on liquidity timing. Priority #1: preserve capital. Priority #2: ensure you can cover near-term expenses, even in a worst-case scenario, before chasing yield.

Operating cash should stay in bank deposits that you can access anytime. Excess cash not needed immediately can go into slightly higher-yielding, low-risk instruments like money market funds or short-term bonds. In today’s environment, this can earn 2–3% while keeping risk low.

Pro tip: Draft a simple investment policy and get Board approval before investing. This ensures everyone is aligned on liquidity, risk, and expected returns.

5. Have both Short- and Long-term Cash Flow Forecast.

For SMBs and entrepreneurs, it’s good to get a clear view of how cash will flow in and out in the coming weeks and months. A bank balance is a snapshot in time. It tells you how much cash you have right now, but it doesn’t reveal upcoming payments, customer receipts, or seasonal variations in sales.

Short-term forecast: Most SMBs start with monthly cash forecasts built on bookkeeping software. It’s great to see the short-term forecast based on open sales and purchase invoices, but they don’t show late payments. But that doesn’t mean they’re useless.

Long-term forecast: Riskrate’s monthly forecasts from your general ledger give you an easy helicopter view. With the help of AI, you can run quick monthly estimates that understand seasonal variations, spot peaks and troughs in working capital, and give your management team or investors a reliable big-picture view. This is especially valuable for long-term planning and high-level discussions.

6. Agree on a Cash Limit with Your Bank 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.

7. Level Up With Cash Pools (When You Have Multiple Entities).

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 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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