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Cash Flow: Free Guide On Managing and Tracking Small Business Cash Flow in 2022

Hillary Marcel 0


The money that flows into and out of your business over a given period is referred to as cash flow.

Cash flows in and out of your business regularly. It enters the business as “income” from customers who purchase your goods and services. It leaves the company in the form of “expenditure,” such as rent, payroll, monthly loan payments, supplier payments, and so on.

Positive cash flow

If you want to stay in business, you need to keep your cash flow positive, which means you get more money than you spend. If your company has good cash flow, it will be able to pay its invoices on time and cover any unforeseen expenses.

Negative Cash flow

There will be times when you have “negative Cash Flow.” For example, if you purchase factory equipment or if a client payment is overdue. To overcome this Cash flow shortage, you may need to rely on a bank overdraft or a short-term loan. However, as long as the negative Cash flow was anticipated and your company reverts to a positive Cash flow position, it should not be a major issue for your small business.

Cash flow is often recorded over a certain period, such as a month, quarter, or year.

What is the significance of cash flow for small businesses?

The success of a small business relies heavily on cash flow.

One of the most prevalent reasons for business failure is a lack of capital. Even the most profitable companies can swiftly become insolvent if their cash is locked up in late or unpaid invoices and they are unable to pay their creditors.


The early stages of your business . in some cases are one of the most difficult times for cash flow. While you’re busy building up your business, you’ll have a lot of costs but no clients or consumers to generate revenue. That’s why it’s critical to think about your cash flow position right away and ensure you have a temporary cash source, such as savings or an overdraft, to fall back on.

Maintaining a watchful check on cash flow is especially critical for seasonal businesses. If your revenue fluctuates significantly during the year, you must carefully monitor and manage your cash flow. Although monitoring cash flow in this sort of business might be difficult, we’ll explain to you how to do it in the next paragraph.

How to Manage the Cash Flow of Your Small Business

So, what can you do to prevent your business from going bankrupt?

  • Create a Cash Flow Statement as well as a Forecast.

Creating a cash flow statement and projection is the greatest method to keep a close check on the movement of cash in and out of your organization. These straightforward financial records will provide you with a picture of your current monthly cash flow as well as your projected monthly cash flow.

Your accounting software should now provide a cash flow statement as one of its regular reports. If not, these documents are quite simple to generate and do not require any prior accounting knowledge.

  • (2) Think about your payment conditions.

Choosing adequate payment terms is another important element in managing your small business’s cash flow issue. Many businesses that sell directly to customers accept payment right away. A restaurant, for example, gets paid when the clients finish their meal, but a plumber or electrician expects to be paid as soon as their task is completed.

Businesses that sell to other businesses, on the other hand, frequently extend credit in the form of payment periods of 7, 14, 30, 60, or even 90 days. Extending credit to consumers and clients can be a good way to attract new business and create trust, but it will have an immediate impact on your cash flow. Offering payment terms of 60 days may be attractive to a consumer, but it will have an immediate impact on your cash flow.

customer who will be able to ‘buy now and pay later, but how will you operate while you wait for the payment to be made?

There’s also the ongoing issue of late payments to consider. Late payments are a major source of cash flow issues, so consider how you’ll encourage your customers to pay on time. You might take numerous approaches, such as collecting late fees, giving early payment incentives to encourage clients to pay on time, or implementing “due on receipt” payment conditions.

  • Be very selective about who you do business with.

As a small business, you must be careful about who you work for and do credit checks on prospective clients before agreeing to deal with them. It is not simple to turn away prospective new contracts based on a credit check. It will need tenacity, but it might be the finest thing you ever do for your business.

Consider the impact on your cash flow if you spent a month executing an order for a single client only to have them accept the items but refuse to pay. You might seek legal action to retrieve the money owing to you, but this would be costly and time-consuming. How will you function during that period if you can’t acquire fresh merchandise, pay your expenses, or pay staff wages?

Credit bureau agencies allow you to quickly check a business’s credit profile online. If you discover that the company has a less-than-perfect credit history, you may opt not to provide them credit or even associate with them at all. Monitoring the credit activity of key personnel involved in the company may also be advantageous. Stay away if they have been linked with previous bankrupt companies or are the directors of many firms at the same time.

  • Set and stick to clear expectations.

Considering a prospective customer has a strong credit history and you’re willing to give your goods or services, you must now ensure that they comprehend the conditions of your agreement to conduct business. Although a verbal conversation may be used to initially agree on payment terms, you should ensure that this is followed up by written payment terms and conditions.

It should include everything from delivery terms to what happens if you don’t get paid. Writing out your payment terms may appear time-consuming, but depending on the type of your business, you may be able to locate a standard set of terms and conditions online that contains all of the important elements.

  • Also, get to know the persons in charge of the payments.

Building connections with the persons who will be making the payments is always advantageous in reducing the probability of payment delays. Checking that the invoice was delivered to the correct location and that all of the relevant data were entered correctly can assist to prevent delays. When submitting the invoice, it’s also a good idea to inquire if there’s any reason why the payment won’t be paid on time, since most individuals would go out of their way to avoid breaking their word.


We recommend that small businesses maintain track of their cash flow every month. If your business is brand new or operates primarily in cash, such as a restaurant or a shop, you may need to track your cash flow on a weekly or even daily basis.

Some free Resources that you may like

A Free Guide on The Importance of Inventory Management: How It Affects Your Business. 1

What are Journal Entries in Small Business Accounting? No. 1 Free Guide

What is a General Ledger in Accounting

Basic Accounting Book for SMEs: Your Number 1 Practical Accounting Book for SMEs

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