Cash flow 101

By: Kim Throndson

July 30, 2025

Cash is king, even in the digital age, it is still true.  Cash flow is the number one reason many enterprises fail.  As discussed in my blog (5 things for success and Know your numbers) most times cash flows out before it flows in, or still flows out regardless of any money flowing in.  Here are some tips to help Owners and Managers deal with cash flow for success.

1.       Definition

Cash flow is literally money in and money out of the enterprise.  It is best to monitor it in small manageable timing like weekly or monthly.  If you are wondering what your cash flows are in 6 months, that is too late.

Money in:

-            Sales do not equal money in, until the money comes in. Many owners or managers get caught up that a $10,000 sale on credit, means they have $10,000 to spend.  Big Mistake.  A Credit is called a Receivable in Finance and it is just that  - a promise to pay.  The product goes out/or partially out before the enterprise is paid. 

-            Cash sales do equal money in, as the sale is paid for at the time the product or services goes out.

Money Out:

-            The bills keep coming so owners and managers know what money out is, but timing is important. 

-            Fixed costs – always money out (as discussed in my blog- Know your numbers) like rent.

-            Variable costs – bills related to sales like product – most time money is spent before it is received.

-            Taxes and fees – certain times of the year these are due regardless of sales or money in.

2.       Managing

Money comes in and money goes out of an enterprise continually.  It is like the blood of the company.  Owners and managers must monitor and improve the flow.

Business Manager – critical function – to manage the cash flows and deal with customers and suppliers.  This cash flow cycle gets more complicated the larger the enterprise.  As a Finance Manager much of my time was spent on ensuring the cash flow cycle ran smoothly.  Business Managers need to ensure customers are paying, and that they have good supplier relationships and terms.

 Things to consider:

-            Are you getting paid on credit sales quickly

-            Can you get partial payments (deposits) or more cash sales by taking credit card payments

-            Can you shorten the time to order or pay for product before the sale

-            Can you set up fixed costs to better match your money in cycles

3.       Plan

Monitor and plan your cash flow.  Again this is not reviewing sales and sales reports, this is monitoring your bank accounts.

-            Use a planning tool (see cash flow forecast template in resources)

-            Ask your accountant for payable reports and bank statements

-            Look at your bank accounts daily or weekly

-            If the flow is sluggish, can you improve on the money in situation, or reduce the money out.

-            Does the enterprise need finances to smooth the flow  ( watch for future blog post on this)

-            keep the surpluses for the lean times

Summary:

The most successful companies have healthy cash flows.  To improve cash flows:

Define the cycle

Manage

Plan