Managing Cash Flow

Managing Cash Flow

How do you manage cash flow?

A client of mine who runs a small business has recently come into some serious cashflow issues and along with that accumulating debt. My client asked for advice on how to manage this and assist in developing, together a plan to work through the situation he found himself in. The article below includes a basic overview and covers some of the advice I gave 

Poor cash flow is the main cause of business failure within the first year.

This article will guide you through what good cash flow means for your business, and we will also look at some of the common cash-flow problems, and potential solutions that may assist with your cash flow management.

CashflowWhat is Cash Flow?

Simply put cash flow the money that comes in and then out of your business. On a monthly, quarterly and annual basis, this coming and going of monies is recorded as the Cash Flow.

Every business will be faced with some form of cash flow problem especially when starting out, below are some of the most common cash flow issues that most businesses come across.

Book Keeping

Starting and running a business is very time-consuming, and distractions are everywhere, often bookkeeping is the last thing to get attention and at times completely ignored.

You can be forgiven for overlooking your cash flow in the short-term, but if you don’t get a handle on it and you can say, it’s goodbye business. Bookkeeping needs to be organized, monitored and always up to date.

Problems can develop and arise in many areas if we are not alert and monitoring our cash flow.

Do you remember Anne in the article business-start-part-1. We will use Anne again as a real life case study.

Anne has a successful established floral business she has a good customer base and charges a profitable rate for your product and service.
Recently Anne has received calls from her suppliers that she has started to fall behind in paying her suppliers. Anne has always been in good standing with her suppliers, and as she had money aside for such an event, so she was able to keep them happy.

There was still a problem, and Anne was perplexed, she always kept good records, and she thought up to date. A closer look at the books was needed.

About two months ago Anne changed her bookkeeping system. This new system is meant to be easy to use and more efficient able to do a lot of the background work once the data is inputted such as invoicing and automatically emailing out to her clients. Looking closer at her books Anne discovered inconsistencies, no records of the invoice number and the amount charged invoices were incomplete and inaccurate.

Anne realised that when she installed the new software, she didn’t take the time to familiarise herself with it. She took it for granted that it would be the same as her previous system; it wasn’t while the basics were the same, the automation in the invoicing system was quite complex.

By not taking time to learn the new software cost Annes business tens of thousand of dollars.

Anne approached her customers and explained the situation to them. While not obligated to pay some customers came through and paid her the correct invoice amount.

Anne made the time to understand and learn the new software fully; she learned a valuable lesson about time allocation, and cash flow management

For many businesses, the best way to manage finance books is to use an accounting system and as Anne learned keeping it up to date. Accounting software is an efficient tool that can be used to keep control of you business finances.

Using accounting software for your business is, a good idea you need to know how to use it and also use it to its full potential?

Getting and keeping your books in order will help you to keep on top, you will be able to track and know exactly what you owe and more importantly what is owing to you.


Debt Accumulation

Amounts owed to you by your customers can accumulate and sometimes to a point where the amount has to be written off.

The situation for Anne was in large sums were not able to be recovered, and she had to write it off as a loss.

For a new business, this can have a detrimental effect on the continued operability of the business. A system is needed to monitor what is owing to your business; this is credit control.

With Anne’s case she had an accounting system capable of capturing this; the problem was this wasn’t being used effectively.

A credit control system helps a business to identify and claim any monies owing. It is as simple as regularly reviewing your books, balance sheet identifying where there are shortfalls, and tracking these to the source, always this will be unpaid, or partially paid invoices by your customers.

Once you have identified who is outstanding on payments make time each month to send out letters and emails or even a simple reminder phone call most times this is all that is needed to prompt payment. The next step, failing this is handing any bad debts to a debt recovery agent.

Profit Balance

Any business is in business for primarily one reason, and that is to make a profit.

If you don’t have the right balance and not earning a profit, this will lead to low cash levels. No business can sustain losses indefinitely a business may survive for a while but only if it has cash put aside for hard times. Or like Anne she had some cash reserves to pay her debts. If profits are consistently low, any cash put aside will eventually run out and the business will fail.

Profit Loss

If your business has a profit imbalance, you need to look very closely at your books and address the areas making a loss immediately.
You may need to look at your pricing or what areas in your business have a small turnover and maybe focus your efforts in areas of the business that are more profitable.

Business Growth

Of course you want to grow your business, remember there is a time and place for everything.

Growing a business too quickly can cause cash flow problems, you will likely need more staff, possibly a larger premises.

Do you have the funds in reserve to cover this, and how long can you sustain this until you get the return on what you have invested?

Forecasting Cash Flow

Forecast cash flow is a must for any businesses.

A cash-flow forecast is also a tool to assist you in making important decisions, like when to invest, or when to reduce expenditure.

Having a cash flow forecast, will give you a view of the future and will be able to envisage the cash flow highs and lows over a given period. A forecast will give you a tool to know how much your money business will require over period, quarter, year and years to be profitable and grow.

The good thing with a forecast is you can compare the actual figures to the amounts you forecasted. Comparing these, you will be able to to see any discrepancies, and by analyzing this you can see what could be causing this. Also you this shows you need to change your forecast and adjust for these discrepancies.

Always remember; cash flow forecast is like the weather forecast, it changes and is not always entirely accurate. You need to monitor, review and adjust it regularly, monthly to start then, quarterly, and annually.

Any business needs to pay close attention to the issues we have discussed. There are many more issues, and any business needs to stay alert and constantly develop solutions to keep the cash flowing. A business that does this is the business that will endure and be successful for many years to come.

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About Darren Wilkins


Darren is a semi-retired senior executive and serial entrepreneur who runs a number, of successful businesses both online and offline.

With 30+ years experience in management and as a management consultant Darren has a can-do attitude and offers real practical advice that can be used for any business no matter the size, Darren is using his time focusing on online opportunities and building better businesses.

With global experience managing and directing multimillion-dollar mega construction projects and businesses. Darren has a wealth of practical experience to share and wants to help you and your business.  

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2 thoughts on “Managing Cash Flow

  1. Wow, just what I needed, simple easy to follow information. I have a business and cash flow is one of those tasks I hate.
    I can see it can easily get out of control now, thanks for the advice I will pay closer attention to my cash flow from now on.

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