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Go With the (Cash) Flow

I once took over as the manager of a business that was in decline. While we eventually turned things around, it took us about three years of operating at a loss to get there.


Wait, what? You lost money for three years but were able to stay open (and even grow!)?


How in the %#$@ did you do that?!


The Answer: Cash Flow


Sometimes, and especially now that we’re dealing with Covid, cash flow for a small business can be more important to track than profit and loss. Cash flow is just what it sounds like, the flow of cash in and out of your business. It’s more than your profit and loss statements. Just looking at your bank balance is not enough either. That only shows you what you’ve got now, today. You need to consider upcoming bills and (hopefully even more!) upcoming payments.

What Do You Know


To get a grasp of your cash flow, start by looking at your profit and loss year to date. What do you already know about your business…do you have good and bad months? Was the first part of the year profitable or more difficult? Use that info to make some general projections about the rest of the year. Starting a simple spreadsheet would be a good idea right about now. If things stay the same, are you likely to have a profit or a loss? Are there months that have larger or seasonal expenses like tax payments? With that big picture knowledge you can start to drill down.


Take a look at your bank balance and add any undeposited funds sitting in the drawer (also… get that cash to the bank!). Subtract your unpaid bills as well, and now you’ve got an idea of you current cash balance.

What’s Coming Up

Cash In - After you’ve figured out your current cash balance, look at expected cash flowing in. Be sure you look at actual cash in, not just sales. If a customer was just billed but has 30 days to pay, don’t count that cash now, count it in 30 days. That’s one big difference between a cash flow projection and a profit/loss projection…timing. Do you have jobs or contracts starting? Add the projected payments to the correct month in your spreadsheet. This is a great time to evaluate your revenue streams (should you add products or services, should you sell online) and billing practices (are you actively invoicing and collecting those payments on time).

Cash Out - This is where things can get tricky. You need to pay your bills…and your employees…and your taxes, so keep an eye on what’s coming up and WHEN it’s due. If you know that payroll is due next week, and a bill is due next month, don’t cut yourself short by paying the bill too early if you need the cash for payroll. If things get really tight, you may need to reach out to vendors to adjust your terms or create payment plans. Asking for this BEFORE you need it is often easier than asking too late, and planning your cash flow lets you know if that might be necessary. Also, just like with the cash in, take a look at your expenses and make sure you aren't spending money that you don't need to. If you have large overhead expenses, can you modify or refinance them to save some money? If you have a discretionary budget for meals and travel, are you treating it with respect, or as a slush fund...? These expenses all add up, so be sure you keep an eye on them!


Understanding your cash flow can help you get through difficult times while still paying bills and preserving important business relationships. They all want you to succeed, too! If you’re able to plan ahead, you’ll hopefully give yourself enough time to turn that profit and see those bank balances grow.

PECO Arts helps small business do business by providing management, marketing and bookkeeping support. Let us know how we can help you succeed.

#management #bookkeeping #covid19 #cashflow #budgeting

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