Money flows in and out of your business. The process of tracking the dollars and cents over a set period of time is cash flow management.

Whenever someone buys from you – products or services – and doesn’t pay upfront (whomp whomp), your incoming cash flow becomes dependent on accounts receivable aka, amounts owed to your business. Accounts Receivable is still a business asset – just requires some extra steps to collect and account for it.

Now, if you’ve got cash coming in – you likely also have cash going out – this is called your Accounts Payable. Examples of outgoing cash: rent payments, sales tax payments, payroll expenses and other miscellaneous business expenses.

Cash flow management encompasses the movement of money in both directions–inward and outward. The success of your business is dependent on how you manage, track, and predict cash flow. 

Cash Flow (it’s success and predicated success) is based on your business having on-going Accounts Receivable in higher amounts than your Accounts Payable. It’s predicted that the first six months of a small business are critical for savvy cash flow management. You may have extra start-up expenses or payroll to consider. It’s essential during this time to reduce your rate of spending to maintain a positive cash flow. 

If you find yourself in the negative, don’t panic. You can consider options like a loan or a line of credit, you can explore ways to cut overhead in the short term maybe even consider enlisting the advice of a professional bookkeeping agency to help uncover opportunities to save.  To be truly cash-savvy you’ll want to look at business-specific spending like holiday-themed spends or tourism businesses which may have an off-season. Diligent record-keeping and frequent monitoring are the keys to avoiding any unpleasant surprises or damaging cash shortfalls.

What is the difference between cash and profit?

As strange as it sounds, it’s entirely possible for you to make a profit but have zero cash. The reason? Profit is related to accounting, while cash is how much you have in your bank account.

6 TIPS FOR EFFECTIVELY MANAGING CASH FLOW

1) Know your records inside and out

If you don’t have the time (or desire) to track your own books, find a professional bookkeeper who can dig into your financial records, digest the big picture, and keep you informed.

2) Track your cash flow

Pay careful attention to how money is traveling through your business. Are there areas of expense that are eating into positive cash flow? Are there patterns that may give you a clue of what to expect in the coming months? Cash tells a story as it travels. Listen closely.

3) Create a cash flow statement

A cash flow statement helps show what cash you received and what cash you paid out at the end of each month.

4) Plot your next steps

If cash isn’t king in your business, don’t get beholden to loans, or credit cards, instead watch for areas where you overspend. Ask vendors to change recurring payment due dates to better align with higher cash intake timeframes.  

5) Collect on accounts receivable

Look through your contracts and accounts. Are there customers that are behind on payment for the products or services they purchased from you? Have you sent updated invoices that request payment? Don’t be afraid to politely, but directly ask for the money that you’ve earned. It will only serve to bump up your cash flow and provide a buffer if unexpected expenses arise.

6) Check in on your cash flow management regularly

No matter the current state of your financials, analyze your cash flow statement and back-office reports on a frequent basis. You’ll be better positioned to spot irregularities and opportunities and reduce the risk of a cash flow shortage.

And always remember this – when it comes to your small business, you are your best advocate. Start tracking your cash flow today to ensure a healthy bottom line and perhaps more importantly, the peace of mind of having visibility and control over your company’s financial future.

How do you manage cash flow in your business?