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Cash Flow Management





There are very few things much more important than cash flow in any business. And if you experience a healthy cash flow in your business, you can easily uphold your day-to-day operations, pay off outstanding debts, and readily expand your business.

What this simply means is that without cash flow, your business is just a few steps away from devastating financial ruin. According to Jessie Hagen from US Bank, cash flow gets the blame – 82 percent of the time – when businesses go bankrupt.


In this guide, you will learn all about cash flow, what excellent cash flow management should look like, as well as the strategies you can deploy to be in the chips.


Cash flow refers to the accurate measurement of the amount of money that comes into – and out of – your business within a specific period. When more cash comes into your business than the amount you spend, it is known as ‘positive cash flow.’ This should be your goal in business so that you can pay your bills, cover expenses, etc.

But negative cash flow occurs when you have more money leaving your business than the amount that comes in. When it happens, there’s no way you can foot any bills. This may spell doom for your business unless you do something about it.

To achieve positive cash flow, you have to put in the work. This is where cash flow management comes in. You have to start analyzing and managing your cash flow much more efficiently by controlling your business’s inflow and outflow of cash.

The Small Business Administration (SBA) always recommends devoting oneself to cash flow analysis in order to ensure the availability of enough cash every month that can be used to cover your responsibilities in the following month.

To aid businesses that need to undertake cash flow analysis, the SBA has made available a free cash flow worksheet you can readily use. Moreover, accounting software packages such as Quickbooks, etc. – targeted at small or medium-sized businesses – are just a click or two away.

You can use any of the accounting software packages to create a cash flow statement. Some websites even offer free templates, including Business Solutions, Winsmark, and Office Depot.

What is Cash Flow Management?

Cash flow management refers to a distinct set of strategies and practices that helps you efficiently track, analyze, and improve your business’s financial situation.

The primary goal of cash flow management is to ensure you get positive cash flow, i.e., where more money comes in than the amount that goes out.

Cash is always king in commerce and industry. And if you want to ensure your business stays afloat at all times, managing your financial statistics is vitally essential. It is, however, even more critical if you have well-laid-out plans of significantly growing and expanding your brand.

And lastly, cash flow management helps you accurately predict and also plan for cash surpluses and shortages.

You cannot have successful financial management without balancing 3 crucial elements:

  • Accounts receivable, i.e., what the customer owes you.
  • Accounts payable, i.e., what you owe suppliers.
  • Shortfalls, i.e., the amount of cash or money you owe that considerably exceeds the funds that are currently available.

It is vitally essential that one of these elements never overtakes the others. For instance, if your clients owe you too much money, you won’t record enough money coming into your business. And if you also owe your suppliers too much money, it simply implies that too much money will be going out at the end of the day. These scenarios lead to only one outcome: negative cash flow. This must be minimized or avoided at all costs.

The Difference Between Profit and Cash Flow

Before sharing quick, hot tips for highly effective cash flow management, it is crucial to differentiate between profit and cash flow.

First off, profit is not equal to cash flow. Don’t be shocked: it is what it is. You cannot take one look at your profit and loss statement and say you have gotten a grip on your cash flow. It doesn’t work that way.

Several other financial figures usually feed into factoring in your overall cash flow. And this includes inventory, accounts receivable, capital expenditures, accounts payable, and debt services.

A super-smart cash flow management calls for a laser focus on every driver of cash, and this is in addition to your profit or loss.

Few businesses have discovered this secret: knowing what happened to the cash that came into your business is not the same as knowing whether or not you earned a profit or suffered a loss.

By the rules of accounting, profit is just revenue minus expenses. When you invoice a particular customer for services rendered or products sold to them, it results in revenue. But collecting that money on that specific invoice is what actually creates cash.

To generate profits in your business, you need positive cash flow. And you need more cash in order to pay suppliers and employees so that you can easily make goods. The sale of these products helps generate profits.

However, if you do not have money to create the products you should sell, you won’t make any profit. This is why structuring your brand to have a positive cash flow for its considerable growth and expansion is vital. And this leads to an increase in profits.

Business growth always puts a lot of strain on cash. You will need to make some investments and bring on particular expenses ahead of achieving the higher cash flow as well as revenue that comes with highly successful growth.

For instance, opening a new office in another city in order to build your brand or building a new facility in order to sell more to customers are scenarios that gulp cash.


Top Tips for Efficient Cash Flow Management

Therefore, here are some tips for efficient cash flow management:

  • How Much Do You Need to Break Even? Find Out

The first thing you need to do in your journey towards positive cash flow is to precisely determine how much you will need to earn in order to break even.

You are doing something right if you happen to go over the break-even point. However, if you fall short of the break-even point on a consistent basis, it simply means you need to address an issue or two.

  • Encourage Early Payments and Make It Easy

Always encourage your customers to pay up as early as possible. Getting an IOU from your customers is not equal to having raw cash in hand or the bank.

One of the best ways you can do this is by offering discounts and special deals or offers if your customers pay on time. This will be of immense benefit to your business.

  • Get An Emergency Cash Reserve

It is an excellent practice for businesses to have emergency cash reserves, just like most people are advised to.

Having emergency cash reserves gives your business security and flexibility in case an economic downturn occurs. Therefore, have enough cash to cover up to 6-9 months’ worth of expenses, and you will have little to worry about.

  • Assign An Expert to Track Your cash Flow

If your brand is still growing, it is crucial to keep track of your cash flow. However, you shouldn’t be the only one monitoring your cash flow.

Get an expert – most preferably an accountant – to monitor your cash flow. But ensure you are always up to speed with those numbers, even if you will be way under or over your break-even point.

  • Set Terms and Invoice Timelines

It is considered a good business practice to fully institute payment terms – not by mere word-of-mouth but in writing – before taking on a supplier or new client. Lay out clearly when you expect payments for invoices; it could be immediately upon invoice or within 10, 20, or 90 days.

It is also an excellent – and wise – practice to demand an initial deposit for resource-heavy projects. This puts some cash in your hand so that you can cover all necessary expenses.  And don’t forget to request the balance upon reaching a specified milestone or completing deliverables.

  • Minimize Your Expenses

Bringing in more money is the ultimate goal of every business and excellent cash flow management. However, if you can cut down expenses or costs, you will achieve the same results, though in a different way.

Do you have pending payments? Negotiate or request for an extension. A few weeks- or even a few days’ – delay can have a considerable impact on your business cash flow.

Hire remote workers over full-time employers in order to fill any staffing gap you may have in your company. Lease or rent out unused equipment in order to cut down substantially on storage costs and bring in extra cash.

Look for other ways to boost profit margins – consider searching for cheaper suppliers or sell high-priced products.



Cash flow management is a strategy or practice that every business that hopes to stay in the game for the long haul should consistently implement. Some of the tips shared in this guide may not necessarily work for all businesses.

This is why you must only adopt those that make sense to your business and apply them accordingly. You can also combine several approaches in order to test the waters and get your positive cash flow up to speed.

Apply these tips to your brand successfully, and your business will start thriving, irrespective of the economic atmosphere.

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