Profit and cash are not the same thing, and a lot of small business owners learn that the hard way. You can have a profitable year on paper and still not be able to make payroll on the 15th, because the money you earned hasn’t actually arrived yet.
Cash flow is simply the timing of money in and money out. Managing it well is less about complicated finance and more about seeing what’s coming before it arrives.
Know where you stand every week
The first step is boring and essential: know your actual cash position. Not what you think is in the account, and not what’s owed to you. What’s there right now, and what’s due out in the next few weeks.
Pick a time each week, Monday morning works for a lot of people, and look at:
- Current bank balance
- Invoices outstanding and when they’re due
- Bills, payroll, and taxes due in the next 30 days
Fifteen minutes. That’s all it takes to avoid most surprises.
Build a simple forecast
A cash flow forecast sounds intimidating. It isn’t. It’s a spreadsheet with weeks or months across the top, money coming in and money going out down the side, and a running balance at the bottom. Start with the next 13 weeks, which is a common window because it covers a full quarter.
Be conservative. Put income in when you realistically expect to receive it, not when you send the invoice. Put expenses in when they’re actually due. The point isn’t precision. It’s seeing the tight weeks coming early enough to do something about them.
If spreadsheets aren’t your thing, your bookkeeper or accountant can set one up, and most accounting software has some version of this built in.
Speed up the money coming in
- Invoice immediately. Not at the end of the month. When the work is done, or on a fixed schedule.
- Take deposits. For project work, a deposit up front is standard and protects your cash.
- Shorten payment terms where you can. Net 15 instead of Net 30 makes a real difference.
- Make it easy to pay. Online payment links, saved cards, automatic billing for retainers.
- Follow up on late invoices quickly and consistently. Automated reminders help, and they keep it from feeling personal.
Smooth out the money going out
- Know when your big recurring bills hit, and spread them across the month where you can.
- Review subscriptions every quarter. Small monthly charges add up quietly.
- Set money aside for taxes every time you get paid, in a separate account, so quarterly estimates don’t become an emergency. Your accountant can tell you how much.
Build a cushion
A cash reserve is the single best protection against a bad month, a slow-paying client, or an unexpected expense. A common goal is enough to cover a few months of essential expenses. Build it gradually, a small percentage of every payment, until it’s there.
Know when to get help
If you regularly don’t know whether you can cover next month, or you’re relying on credit cards to bridge gaps, talk to a bookkeeper or accountant. A few hours of professional help is much cheaper than a cash crisis. They can also help you think through options like a line of credit before you need one.
Talk to other business owners about money
Cash flow is one of those things almost every business owner struggles with at some point, and almost nobody talks about. Hearing how others handle slow seasons, late payers, and taxes is useful. Bring it up at a WEN Round Table.
Related reading: How to Set Prices With Confidence and Why Women Entrepreneurs Must Talk About Money.
This post is general information, not financial or tax advice. Talk to a qualified accountant about your specific situation.
