Cash Flow Management And Your Business.
“Cash is king” might sound like a cliche to you. But a business owner understands the true importance of cash. There are many indicators of success, such as market share, profit, and turnover, but cash remains the king. The reason is simple: without cash, you cannot meet monthly bills, wage runs, and loan payments, and the business will ultimately fail.


In fact, according to Jessie Hagen of US Bank, when companies fail for financial reasons, poor cash flow is to blame 82% of the time.

What is cash flow?

An important metric of financial performance, cash flow, can be described as a cycle: your business uses cash to acquire resources. Cash needs to be monitored, protected, controlled and put to work. The timing of money flows can be vital to your business’s success or otherwise.

Contrary to the misconception, profits are not the same as cash flow. Your business can show a profit, but you may start hitting blockers in your operations if you don’t have sufficient cash “flowing” into the business every month.

That is why it is said, “Revenue is vanity, profit is sanity, cash is reality.”

Three critical elements of your cash flow

Accounts Receivable (i.e., cash inflow)

The money your customers owe your company for goods or services you provided but have not been paid.

Accounts payable (i.e., cash outflow)

The money your company owes the suppliers/vendors for goods and services that have been provided but have not been paid.


Goods and raw materials purchased from suppliers and then sold to customers to generate revenue is inventory.

What is cash flow management?

There is a cash-flow gap when cash inflows seem to lag behind cash outflows. Cash-flow management is all about watching and monitoring this cash-flow gap closely.

It is about figuring out when you’ll have cash in your hands, how to acquire more of it and that too faster, and how to manage your spending, so you don’t run into cash flow problems.

Cash-flow management doesn’t stop at accurately projecting a business’s income. That is just one end of the cash flow management and optimisation spectrum. Responsible spending is equally important.

Advantages of managing cash flow management

  • Once you know where your cash is tied up, you can spot potential bottlenecks and act to reduce their impact.
  • It helps in planning ahead.
  • It is an excellent way to reduce your dependence on bankers and save interest charges.
  • It helps to identify surpluses which can be invested to earn interest.
  • Overall, you are in control of your business. This can help you make informed decisions for future development and expansion.

How to manage cash flow?

The ultimate aim of cash flow management is to keep a business’s income higher than its expenses at any given time. In simpler terms, you should be earning more than you spend.

Follow these nine steps to improve cash-flow management.

  1. Make sure your books are up-to-date.
  2. Have your accountant generate cash flow statements. Cash flow projections can up your analysis.
  3. Don’t forget to analyse your cash flow statements. It will help you understand how money is moving through your business.
  4. Stop relying on your credit card or line of credit to make your ends meet. Free up your cash flow.
  5. Overspending can be a game spoiler. Say no to unnecessary expenses or spending money at unstrategic times.
  6. Aim at getting money faster in your pocket.
  7. Don’t analyse the cash flow statement once. Make it a habit and do it once, and nip shortages in the bud.
  8. If you’re facing a severe cash flow crisis, you may consider selling your assets.
  9. Pay off debts faster so that you have to pay less later in interest.

Cash conversion cycle to boost your cash flow

The time your company takes to convert its cash on hand into inventory and then convert inventory back into cash is known as the cash conversion cycle. The shorter the cash conversion cycle, the better because shorter cash cycles mean cash is moving faster through your business.

How to collect money quicker?

  • Send invoices on time.
  • Offer discounts to encourage faster payments.
  • Speed up the payment process by offering several avenues to pay.

How can Outbooks help?

Outbooks give you a dedicated bookkeeper to reconcile bank statements, categorise transactions, and prepare monthly financial statements. You can effectively manage your cash flow if your bookkeeping is under control. It all starts with the letter B!