How to Master your Cash Flow Management

Cash flow is critical for businesses, so cash flow management is key. Here’s how to get it under control and make it work for your business. 

In business, cash is king. It’s the oxygen that keeps you afloat. Without it on hand, your business may stifle. Hence why managing your cash flow is so important. Unfortunately, many businesses tend to overlook this aspect, making it very difficult for them to operate. This guide will help you understand how to manage your cash flow and suggest some key tips to ensure your business stays accountable and profitable. 

What is Cash Flow?

Basically, cash flow is all the money flowing in and out of your business. It encompasses all the revenues and expenses of a business at any given moment. Cash flow management therefore means planning your inflows and outflows accordingly to ensure your business always has enough cash on hand. 

Cash vs Profit

It is very important for business owners to understand the difference between cash and profit. Put simply, profit is just income less expenses while cash is how much money you have in the bank. 


Your net cash flow is the difference between the money coming in and the money going out. The amount of profit you have made and the amount of cash you have in the bank at the end of the day is rarely the same and getting them confused has caused big problems for many businesses. 

Cash flow is the most critical of all KPIs for obvious reasons – you need cash to pay your bills on time. Without cash your business can end up in trouble quickly. But you also need cash to grow your business. For example, it funds working capital which then allows you to purchase stock and equipment. You also need it to pay back any loans, your creditors and don’t forget, the Taxman always wants a good cut! 

So where does the cash come from? 

There are a few different ways of generating cash. 

Firstly, if you’re just starting out it can come from your own pocket. This is called owners equity or a loan from directors/shareholders. 

If you don’t have the money yourself and you need to borrow it then it can come from a lender such as a bank. 

Finally, cash also comes from customers when you sell them your goods or services. 


As mentioned, profit is not so much about how much money you have in the bank, it is simply the difference between income and expenses. A business may be very profitable, but if it has paid all its expenses and its customers haven’t yet paid their bills, then cash flow issues begin to arise. 

Businesses becoming insolvent despite being profitable is unfortunately something that happens quite frequently. This is mainly due to the fact that a business spends the cash from the profit on big equipment items, a new car or their premises without considering that the cost of that purchase is not the cash payment itself, but rather the depreciation which is only a percentage of the cost. Therefore, all their cash is gone. In this scenario the cash payments do not qualify as an expense which results in the business making a profit on which they will then have to pay tax on – but with what cash! 

To avoid these issues it is important that businesses have both an income and expenditure budget, as well as a cash flow budget. 

Create a cash flow budget

The simplest way to improve your cash flow strategy and ensure your cash flow is under control is to have a cash flow budget – even if it is just a rough one because any cash flow budget is better than none. Use it to track your outflows and inflows. It allows you to find payment cycles or seasonal trends when you need additional cash for payments. 

A cash flow budget can help you plan ahead and make sure you always have enough money to cover payments. 

Once you have the cash flow budget the next step is to monitor actual cash flows against your predictions and if there are issues take steps immediately to correct them.

Short term cash management

Short term cash (working capital) is the money you need to cover expenses during the period between when you start doing the work and when you get paid for it. 

Potential/new business owners need to make sure they have enough start-up and working capital to get their business up and running until the cash from customers starts coming in. Growing business owners need to make sure that the company has enough working capital to support any extra costs of expanding and extra money tied up in stock, work in progress and debtors. 

Businesses can build up their working capital by the owners lending the business money, getting bank loans or by keeping the cash from profits made in the business (instead of paying it out to themselves). 

The challenge for a fast-growing business is to understand that sales growth can in fact be your enemy unless you take a period of consolidation to make sure you have sufficient working capital to maintain your cash flow. Keep in mind that as your turnover increases so do expenses and debtors.  

Long term cash management 

Long term cash is the money you need to set up or buy a business, fund medium to long term growth, and fund asset purchases and core debt. Some long term cash management strategies include:

  • Having good systems in place so you can prepare financial reports accurately and on a timely basis
  • Use the reports as a guide to control cash flows
  • Review your strategic plan on a regular basis to ensure you have the cash flow to do what you want and if not are able to intervene to things back on track
  • Planning around seasonal trends and unusual events 

Choosing the right finance 

If your business seems a bit short on cash, before you race out and borrow money, take a closer look at your cash flow management strategies. 

Could you free up a bit of cash by getting your debtors to pay on time? 

If you just have to get through a short quiet patch – can you call in a favour with your creditors and get your terms extended just for a month or two?

If that isn’t enough then, yes you will have to look at other sources of cash. You have a few short-term options:

  • Look internally: the owners of the business may have to put in some personal money 
  • Overdraft: this type of finance is perfect for businesses that have to pay out various expenses before the money from a customer comes in 
  • Lines of credit
  • Factoring: usually only working for B2B sales, this finance option allows businesses to offload their bills to a factoring company and pay them back with a commission once they get paid

Some long term finance options include:

  • Bank loans 
  • Refinancing 
  • Equity injection

The main point to note here is that the term of the finance should match the useful life of the asset being financed.  

In summary, to manage cash flow efficiently, a business must understand the difference between cash and profit and keep track of how much of each they are making.  Understanding short and long term cash requirements and knowing when it is time to obtain finance is also essential. 

For any cash flow or accounting needs, contact any one of our partners at DFK OGC. We look forward to helping you get a better handle on your cash.

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