Sure, hiring a plumber, collecting rent, putting out tenant fires—primarily figurative—and basking in the financial independence that real estate investing affords you are key facets of day-to-day operations of owning a property. But the often forgotten, sometimes more important, element about real estate investing is cash management.
There is more than meets the eye with property management, and if you are not employing a cash flow management strategy, odds are you are setting yourself and your investment up for failure. Let’s explore a few cash management tips and tricks to help you continue to "bask" in what your money can do for you. Additionally, consider reviewing our comprehensive Guide to Investment Real Estate for further insights.
Why Having an Effective Cash Flow Management Strategy Matters
Cash management inefficiencies are the primary killers of positive cash flow for real estate investors and small business owners. Having a strategy to manage it all provides countless benefits, including:
Reduced Risk
Manual cash management processes that involve multiple touchpoints leave too much room for error: theft, miscounting, lost data, or even lost sales. A cash management strategy acts as your second set of eyes—with 20/20 vision—on all property transactions, reducing the risk of lost profits.
A Partner in (Non)Crime
Think of a cash management strategy as the business partner or angel investor you never knew you needed. It helps you save and make money, implement new ideas, and build customer loyalty through seamless service—all while allowing you to remain your own boss.
Streamlined Processes
Real estate investors benefit from cash flow strategies that streamline all operations. For instance, using a digital rental app enables you to collect rent, pay bills, communicate with tenants, and even provide virtual tours—all from one software platform.
In summary, a cash management strategy ensures you are optimizing your property's working capital by:
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Minimizing excess cash on hand
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Balancing cash inflows and outflows accurately
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Maximizing return on your real estate investment
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Maintaining sufficient working capital to cover obligations and unexpected costs
The benefits of an effective cash management strategy far outweigh any initial costs.
Best Cash Flow Management Strategies
Cash management strategies are not one-size-fits-all. Below are five strategies to consider:
1. Invest in a Software Solution
Every business and entrepreneur should leverage technology to manage cash. Automated cash management systems streamline transactions, improve cash flow, and reduce costs. Keeping a digital record of rent collections, utility invoices, and repairs ensures seamless operations, happy tenants, and a happy landlord. Keeping a digital record of rent collections, utility invoices, and repairs ensures seamless operations, happy tenants, and a happy landlord.
2. Be a Proactive Invoicer and Invoicee
Forget mailing checks or waiting weeks for payments to clear. Streamlined cash management allows you to send invoices faster and receive payments sooner. This minimizes delays in cash flow, ensuring money reaches your account quickly. Streamlined cash management, often times using treasury management services, helps send invoices faster and receive payments sooner, minimizing delays in cash flow.
3. Don’t Be Afraid to Finance (or Refinance)
Short-term and long-term financing can provide a quick influx of cash or fund an investment opportunity. For example, a business line of credit offers working capital for renovation projects, from buying appliances to paying contractors. Refinancing existing loans can also secure better terms, like lower interest rates or monthly payments. We are a Minnesota bank that is experienced in financing Minnesota businesses and real estate businesses.
4. Balance Rewards and Retributions
Having a clear collection policy is crucial. Define payment terms and penalties for late payments, and update policies as needed. At the same time, consider offering discounts for early payments. While you may sacrifice a small percentage of the invoice, early payments can prevent the need for costly short-term loans. Having clear rent collection checklists ensures timely payments and prevents unnecessary cash flow disruptions.
5. Manage Inventory Effectively
For real estate investors, "inventory" means properties. Vacant units and unfinished projects drain cash flow. Keeping track of lease end dates and project timelines can minimize downtime and maximize revenue. Automated systems are particularly beneficial for managing multiple properties. For insights on managing your real estate portfolio, check out our blog on Understanding the Twin Cities Market for Single-Family Rentals.
By implementing these strategies, you can forecast cash needs, speed up collections, and ensure you have the funds to operate effectively. For more detailed guidance, our post on How to Maximize Real Estate Cash flow offers additional valuable tools and insights.
If you're seeking a trusted Minnesota banking partner to guide you through cash management, connect with one of our experienced business professionals today.
