Cash flow management is something many small business struggle with on a constant basis.  Budgeting is a key way to learn more about your cash flow.  I know, I know…”budgeting” is right up there with working out.  We all know we should do it, but none of us make the time to actually do it.  But as with fitness for optimum health, good cash flow management can mean the difference between a successful company and going out of business.  If you are struggling with cash flow, now is the time to get a good handle on it.

There are many factors that come into play when managing cash flow, but the process can really be broken down to three fundamental questions.  First, does your revenue cover your expenses?  Second, are you collecting the receivables that are rightfully due to you on a timely basis?  And third, are you managing your expenses so that you are only paying for what you need?  

Step 1.  Analyze the last 3 months of actual cash in vs. cash out

Step 2.  Begin to create a budget for the next month, based on the past 3 months of actuals.

Step 3.  Review budget vs. actual results on a monthly basis.

Analyze the past

The first and most important step to getting a handle on your cash flow situation is to review how much you have spent the last 3 months. Create an excel cash flow statement (essentially an Income Statement on a cash basis) for each of the last 3 months and take a look at what is really going on. Again, we know, “create an excel cash flow statement” sounds just about as fun as meal prepping over the weekend. SCORE provides this free tool and if you walk through step by step, it’s not as difficult as you may think.

cash flow management


Are you spending more than you make? If you find that you are in the red after completing your cash flow statement, you can start by  cutting any expenses that are not essential. And when considering additional expenses, ask yourself “will spending this money bring in more sales?”  If yes, then spend it, but be sure to confirm whether or not you are generating revenue. If not, you may need to take a step back and really consider if the expense is warranted at this time.

Create a budget

Once you have a good picture of what the last 3 months look like, you can create a budget for the upcoming month.  You will have to make educated estimates for things such as revenue and some of your expenses, but you will also have fixed expenses, like rent and internet access fees, that you know for sure.  (Don’t get too stuck in the details, budgeting is a process, not an exact science, it will get refined over time as you go.)  This will help you to see where you will be with your cash for the end of the next month and can help you plan and manage expenses better during the month.  Continue this monthly and you will be amazed by how much this knowledge can help you feel like you’re in control again.

Review budget vs. actual

Once you have created your budget and laid out your anticipated expenses and revenue, it’s now crucial that you use this tool. It will not do you any good sitting there like that unused treadmill. Simply having the tool does not mean your job is done. Now you must plug in your actual numbers for the month and see how your estimates compare.


cash flow tools

Managing expenses is key to keeping your cash flow positive.  If you notice cell phone bills or internet access fees increasing, call the provider and be sure you have the best plan for your needs.  Cut back on any and all non-revenue producing expenses until your cash in exceeds your cash out.  It is a simple concept that we all understand in theory, but unless you are managing it regularly, it can easily get out of hand.

Another key in cash flow is collections. Some businesses show positive net income every month but do not understand why they still struggle with cash flow. This can be because although you have many clients and revenue, you are not collecting on a timely basis. It is important to have a collections process and reach out to customers who have not paid in a timely manner.  Policies for collecting should be created to enforce collections for accounts over 30, 60 or 90+ days.  Keep in mind that you provided services and are rightfully due this money.

Too often, much like tackling that new workout, the administrative burden of accounting tasks creates a habit of procrastination. If you or someone on your team has the time to complete this task, great! Put a task on your calendar now to get started.  If not, consider hiring a professional to ensure this is managed correctly.   Healthy cash flow management takes hard work, monitoring and persistence to show results but it’s well worth the effort. Champions are made, not born! Give your business what it needs to succeed.