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Control Your Small Business's Cash Flow by following these 5 steps

Updated: May 3

When you start a business, you don’t realize the one million things that it will require of you. You simply think, I charge money for my service/product that I love and I make money! Voila!

But it doesn’t Control Your Small Business's Cash Flow by following these 5 stepsquite work that way….one of the most important things for business owners to understand and learn to manage is not just their revenue and expenses, but moreso, cash flow.

So what is cash flow?

In its simplest definition, cash flow is how money comes into and goes out of a business, or how it flows through your business.

Positive cash flow indicates that a company is adding to its cash reserves, allowing it to be profitable and reinvest in the company, pay out money to shareholders or owners, or pay down debt.

Negative cash flow is when a business spends more than it makes during a specific period. You might have short periods where this happens and for certain types of seasonal businesses, it might even be normal. But learning to manage this cash flow and plan for those ups and downs is critical to your small business’s success and sanity.

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Here's a common scenario:

Income comes in and business is looking good. You have a few regular small expenses come out of your account – normal. Payday comes around and you pay yourself and any employees you have – normal. Then you have one of those days and you realize you’re out of a few key office supplies, so you head to the store. You check your bank account first, things still look good, so you load up what you need and then you add a few things you didn’t because there’s extra in your account. You’ve been eyeing up a new office chair, so you decide to splurge on that too! Things have been great, right?! Business proceeds and all of a sudden, sales take a drastic hit that you weren’t expecting. Rent is due again….you pay it, but you’re feeling a bit sick about where it leaves your bank account. Then you completely forgot that your annual website and a subscription for a product you use regularly are due. Ouch…you get sicker. And then your regular expense that are usually so small don’t seem so small anymore. And once you pay them, now you don’t have anything left to pay yourself….and your personal life is also turned upside down.

Does any of this sound familiar?

If you’re ready to jump off the hamster wheel, keep reading to learn 5 things you can start doing to manage your cash flow better.

Step 1: Reflect on Your Past Expenses

The first thing you need to do is to understand where you’ve been spending and categorize where it's been going. Past performance is indicative of future behaviors and if we understand what and why we’ve done things in the past, we can control it better and make different decisions moving forward.

Looking at our past expenses gives us the ability to help tell a story about our finances. It also can put things in perspective. We’ll use this step to do the expense analysis below to find out what was really important, what was out of impulse and what did we spend that could have been replaced with something else?

Step 2: Establish Boundaries with Separate Accounts

Next, create additional accounts to give you boundaries for spending according to your cash position. Don't look at operating expenses as one big bucket. Think about it as marketing, personal development, fixed expenses, debts, equipment, etc.

 The Profit First method suggests setting up separate accounts for paying yourself, profit, and taxes. This step is so incredibly impactful and enlightening. It helps you to create boundaries and set priorities according to your goals before you even think about spending a dime.

Read the Profit First Blog Post - here

Step 3: Conduct an Expense Analysis

Run an expense analysis and determine which dollars are directly generating you revenue, which are necessary but changeable, and which are truly unnecessary, and start cutting expenses.

An easy way to do start an expense analysis is to print out your P&L Statement to include what % of revenue each expense is. Look at those percentages and ask yourself first, which are necessary to providing your same level of service and products that you do? Which are necessary but also changeable? Which can you completely eliminate and not affect the quality of your business? Notice, I didn’t say, which do you really want to cut? Big difference.

Step 4: Master the Art of Forecasting

Become a pro at forecasting your revenues and expenses and also develop systems to balance out the lows and highs.

I like to suggest my clients do the full year of budgets and forecasts up front at the beginning of the year. And each quarter, you tighten up the next quarter based on what’s been going on, what’s changed, what you have planned, you’re launching, you’re marketing, etc. And each month before the month begins, you lock it in even more and create more adjustments.

Require assistance with your business budget and forecasts - contact us here

Step 5: Build an Emergency Fund

Create an emergency fund for your business and work your way up to holding 3-6 months of cash reserves on hand at all times. These cash reserves should include the amount that it would take you to pay all your necessary expenses for one month, including payroll, paying yourself, rent, utilities, dues, subscriptions and anything else you can’t cut out if you lose 100% of revenue for a month. You can start to build these cash reserves by way of your profitability for long-term success and survival of the fittest.

I always suggest clients do similar to their personal lives and start out with one month of expenses saved before moving onto any other business financial goals, so that you have a little bit of wiggle room if something should happen. One month won’t catch much, but it will allow you to not panic when something does happen and it will help you to sleep better at night.

This last step is the icing on the cake and the best is when you have full 3 months of expenses on reserve for your business and a full 3 month of expenses for your personal finances - this double whammy is the ultimate recipe for a restful night of sleep!

Taking action on these 5 simple steps is the surefire recipe for understanding your business finances and the success of cash flow management. And remember, your business feeds your personal life, so although we must think of the two and engage the two accounts separately, they work together and to have the most impact on your life, both must be running at optimal levels. Too often we think if we ‘fix’ one area, the other will fall into place, but money is fluid and must be managed effectively day after day and month after month.

I am a financial coach specializing in small businesses and I can guide you through the above 5 steps - email me at

Book your free 30-minute discovery call - here

It's time to learn how to manage your cash flow like a pro! 

Download your free guide to get started! - download here

This guide includes regular tasks to build into your workflow to ensure you don't run out of cash, tips on how to create and keep a budget, and the best apps to use to track expenses seamlessly. With this guide, you'll feel confident in managing your cash flow and might even be checking your bank balance daily!

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