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Learn how to master cash flow management with this comprehensive guide by Kordis. Discover strategies for optimizing your cash flow, managing inventory, leveraging technology, and using cash flow statements to boost your business’s financial health.
Cash flow is a familiar part of everyday life. It matters when you want a mortgage, whether you can afford a new TV, or even if you have enough money for Wings Wednesday.
As a small business owner, you know that cash flow is the cash coming in and out of your business over time. It demonstrates the health of your business: if it's cash-rich, needs to carry debt, and even if it's teetering on the edge of bankruptcy.
Tracking your cash flow is different from napkin math. It should be done regularly and methodically using a cash flow statement. Simply put, it allows you to anticipate your cash outflows and inflows.
Dotting the Is and crossing the Ts is a fundamental part of cash flow management, albeit the Is and Ts are numbers and decimal points. This is done with a cash flow statement.
The statement tracks your company's performance, ability to pay off debts, and whether it could support more future credit (loans, credit lines, lease agreements, etc.). It's valuable for forecasting tax obligations, seasonality (lean months, promotions, staffing, etc.), and when you can take advantage of early repayment opportunities.
For more on how cash flow fits within your financial strategy, check out our guide on Small Business Cash Flow Management.
The cash flow statement is broken down into four parts:
This is cash received or spent on the primary operations of the business, including goods or services sold, stock purchases, and even employee wages. These are natural day-to-day transitions for your business.
Primarily, this is money spent on purchasing equipment and property or on investing in other companies. It would also include monies received from selling equipment and property or receiving investment dividends.
This is the movement of money associated with your financing activities. Whether you pay a monthly lease installment, loan interest, or even a lump sum from an investor.
This summary shows whether you made or lost money within the month and what balance (if any) you have going into the following month.
Every small business wants more money coming in than going out. Here are four top tips to keep the gravy pouring in.
“Business owners are often, by necessity, very focused on what’s happening here and now, but they also need to plan ahead,” says Chris Wong, head of Small Business Products with Bank of America.
Tip 2.0: Planning your cash flow allows you to project when you need to organize credit. Doing this in advance reduces stress and time and will help you secure better credit terms.
Keep a close eye on your inventory and avoid understocking or overstocking. Explore inventory management tools—often available as an add-on for your website—in place of hiring. These tools will highlight when stocks are low and can even reorder automatically.
Tip 2.0: There is no loyalty in business so shop around for the best possible deals and negotiate with existing suppliers for better prices, discounts and payment terms.
Knowing your customers' payment terms and when to pay your vendors are two critical factors for a healthy cash flow. Tailor your terms to match those of your vendors so that you will—at the very least—have cash to match the sum of your debts.
Tip 2.0: In an ideal world, your payment terms would be less than your vendors' terms, but this rarely happens. To encourage quicker payments, offer early-payment discounts and leverage late payment fees. Both options will provide a favorable cash flow scenario.
In 2018, the total number of employer firms with cloud-based computing made up about 1.6 million according to the U.S. Small Business Administration SBA). Many businesses use software to track their performance, sales, and cash flow. These are usually subscription applications, but they cost less than hiring and include multiple features that allow you to focus on your business and not your bookkeeping.
Tip 2.0: The Kordis Reporting platform integrates seamlessly with accounting software, such as QuickBooks, Zenoti, Square, and Shopify so there is no need to duplicate data entry.
The U.S. Small Business Administration (SBA) identified in their Frequently Asked Questions report (March 2023) that between 1994 and 2020, one in every two small businesses closed their doors for good within five years, and 66% shut within 10 years.
Melissa Horton (Investopedia) wrote, “A primary reason why small businesses fail is a lack of funding or working capital.” While working capital and cash flow are not synonymous, if a company makes an investment, a negative cash flow is generated, and the working capital decreases. Thus, maximizing the money coming in and minimizing your expenditure contribute to the health of your business and keep your doors firmly open.
Like Wings Wednesday, make cash flow management a regular weekly activity and leave the napkins for your fingers, not your finances.