What’s Cash Flow And Why Should You Give A Sh*t?

You have heard the expression cash is king, right?

Well, in business that couldn’t be more true.

Let’s start with the basics.


What is cash flow?


Cash flow is the total amount of money being transferred into and out of your business on a regular basis. More than the totals of money being earned or spent in a given month, cash flow really focuses on when that money is being earned or spent.

A positive cash flow means that your business assets are increasing, enabling you to pay debts, reinvest in the business, pay expenses and protect yourself against future financial challenges. Often you will hear this referred to as having a high degree of liquidity — which basically means that you have cash you can readily take out of the business.

A negative cash flow means that your business sometimes doesn’t have the necessary cash on hand to pay the bills, reinvest and pay its investors or shareholders. Even profitable companies can fail if operating activities do not generate enough cash to stay liquid.

I’m going to say that again because it’s one of the hardest financial truths for most business owners to understand.

Your business can be profitable every month making more money then you spend, but if the timing of your revenue coming in related to the timing of your expenses going out doesn’t align, you can run out of money.


Here are three ways to manage your cash flow and avoid running out of money.

#1 – Get a Line of Credit or Loan

Cash flow isn’t just a problem for businesses. This happens to individuals all the time who are living paycheck to paycheck. In fact, more than 12 million Americans use services like payday loans each year. When those services are used well, they simply allow people to get money in advance of their paycheck — giving them cash when they need it most.

The equivalent for a business is typically acquiring a line of credit. A line of credit is like a piggy bank you can dip into when you need to spend money before you’ve earned it. For example, you might have a payroll day at the end of this week and you don’t have the cash. You know that you’ll be making that money by the end of the month, you just don’t have it right now. You either can dip into your savings (if you have some) or you use something like a line of credit to fill in that gap.

But you can see without a savings or a tool like a loan or line of credit it is very easy for a business to run out of cash, quickly get behind, and be forced to close.


#2 – Renegotiate the timing of your payables and receivables.

Another way to improve your cash flow is to renegotiate the timing of your payables and receivables when possible. If most of your bills are due on the first of each month but the bulk of your revenue doesn’t come in until the 15th, you might consider renegotiating that timing.

Generally, you want to collect your receivables as soon as possible and extend your payables as long as possible. Collect now, pay later.

If your company invoices clients with a net 60 payment term, ask your clients to shorten that to a net 30 or make the payment due immediately to collect the receivables sooner.

If your company controls clients payments with a preset billing cycle, simply ask them to change the timing of that payment, prorating the first payment of the new cycle to an earlier date.

On the flip side, ask your vendors to extend your payment terms to give you longer each month to pay. Or ask if you can push back your automatic payments to have your payables due later.

This strategy won’t be possible for every client or every vendor, but even a small change in the timing of your payables and receivables can have a big impact on your cash flow.


#3 – Use a cash flow tracker.

My final tip for you here is to know your numbers. Whoever is responsible for managing the finances in your organization should continuously have an eye on cash flow.

For most small to mid-size business operators I know, a traditional cash flow statement is too confusing and not a very useful tool for managing cash. While services like Quickbooks have started creating new dashboards and reports for managing cash flow, I still think a simple spreadsheet is the best tool for understanding your monthly cash flow.

In an effort to help you keep it simple, I even made you a template.

Download our Business for Unicorns Simply Monthly Cash Flow Tracker >>>

The challenge here is that most of you will operate your business on an accrual basis — meaning that revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. But for this spreadsheet to be effective, you must record your transactions on a cash basis, meaning that you recognize revenues when cash is received, and expenses when they are paid. (Click here to learn more about cash vs. accrual.)

The goal of using this spreadsheet is to help you get new awareness about when cash is flowing in and out of your business in an average month. You can also take this to the next level by doing a cash flow statement for the whole year. In any case, you want to truly understand the cash needs of your business — when it comes in and when it goes out.


I strongly believe that if you can master just these three cash flow strategies you will be well on your way to leading a financially thriving business.

Have any questions about cash flow?

Leave a comment below. Let’s be money nerds together.

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P.S. Want to learn more about cash flow and other essential lessons for building a thriving business? Check out our online course Business Tune-up Bootcamp. It’s super affordable, self-paced and you can get started today!