Cash flow is the movement of money into and out of a business or project. Cash flow is imperative to the success of any business. However, many small businesses owners don’t fully understand how important it is to estimate, track, and analyze cash

If cash flow is not managed correctly, a company may run out of cash at critical times, be forced into high-interest short-term financing, lose out on supplier discounts or even fail altogether. There are a number of steps to properly managing the cash flow of a company:


Budget your cash flows properly in order to obtain an accurate projection of your needs. Whether it’s for your overall business or for a specific project, it is important to have a measurable budget which should be your best possible guess at how your cash flows are going to look for the coming period. Look at your historical cash needs. Are there times of the year when cash is a problem and the company needs to rely on high-interest credit?


Compare your actual results to your budget in order to better manage cash flows in the future. Figuring out “what went wrong” is much easier to do when you have a tangible budget to compare your results to. Analyze whether you are on track with your budget. This will help you identify goals for the future, such as the amount of new revenues you need in the coming year or the number of new client acquisitions you need to make.
An important measurement tool is the “what-if” scenario. Use a budget that is easily adaptable to scenario changes such as “what if I only bring in three new clients instead of seven”. You should able to look at a number of different scenarios and determine how each would impact your cash flows. Developing good measurement tools will get you on track to becoming a master cash-flow estimator.Contingency PlansIf you anticipate that you will have times when you’ll need to rely on short-term credit facilities to sustain operations, it’s important to have a plan in place with your bank that allows you to borrow with the understanding that it’s a temporary cash-management solution. You shouldn’t need to rely on high-interest credit cards to fund operations. A revolving line of credit can be a lifesaver for small businesses with seasonal operations.If you find there are times of the year when you run out of cash or struggle to make payments, there are a few “go-to” improvements that should be considered:Collection of ReceivablesCash-flow issues are often a receivables collection issue. You’re not always paid right away or up-front for your sales, which can create a cash flow vacuum at certain times of the year. The idea should be to speed up collection of receivables so that you are getting your cash more quickly. Some ideas for accomplishing this are giving early-payment discounts, requesting deposits up-front on larger jobs, and ensuring invoices are always issued immediately and followed up with on a timely basis.

It is also important to track who your slow-paying customers are (they’ll need a stern talking-to at the least). If you find that you often have to “write-off” receivables, it may be time to review your credit-granting policies.

Management of Payables

A good payables-management system is also a key to cash flow management. You need to be able to track your expense invoices by date and by vendor in order to determine when any particular invoice is due. A well-functioning payables system pays each invoice when it is due, not before or after. This ensures you are not squandering cash on invoices which aren’t due for a month to the neglect of your credit card payments which are due tomorrow. That being said, it’s sometimes beneficial to take advantage of early-payment discounts which are common with some items.

Consult your accountant

Come in and see us if you want to have a cash flow management conversation. We’re experts in cash flow budgeting and analysis, and we might have some good ideas to help you better anticipate and manage the cash crunch that often occurs in small business.


Written by: Chris Brien, CA



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