Why You Need a Positive Cashflow


5 Ways to Maximize Small Business Cash Flow.

Here is some more information on how to cope with the current crisis.

  1. Provide business services virtually

If you own a gym or fitness studio, you can offer personal training sessions via video chat. Or, you can use services like Zoom to live-stream your fitness classes to loyal customers.

If you run a professional services firm (i.e., consulting, accounting, or law firm), you can leverage email, phone, and video conferencing to continue to provide services to your clients. Your clients may need your support now more than ever. 

  1. Offer curbside pickup and delivery services

Retailers and restaurants have also been hard-hit by the lockdown restrictions and social distancing requirements. If you have a corresponding e-commerce site or online delivery platform, making the transition to offering pickup and delivery only should not be too difficult. If you don’t have these services in place, you can promote that you offer these services at your business now by emailing your customer list and promoting on your social media channels, take orders by email or phone.

  1. Stay in touch with your customers

If you have collected customer email addresses in the past, now is the time to use them. If you have figured out a way to offer your services virtually or via pickup/delivery, email your customers and contacts to promote your new offerings.

If you have had to temporarily shut down, consider emailing your list promoting gift cards to your business with no expiration date.

Additionally, if you have company social media channels, promote your new service offerings or gift cards to your followers.  You should also continue posting regularly during this time, even if you are closed, to stay top of mind with your customers. This can help you keep your customers engaged with your brand even though they cannot visit your physical business location.

  1. Work with your landlord, vendors, and suppliers

You should also look at your liabilities, such as your accounts payable, to see where you can ease the cash flow crunch.

For example, many businesses likely work with a few suppliers and vendors where they regularly purchase their inventory and other supplies. Reach out to your vendors and see if you can extend your usual payment terms, or if your vendor can offer a temporary payment grace period.


One important thing you must do that most business owners and entrepreneurs are not willing to do is to track your cash flow!

It is essential that you know how much cash you have on hand and at the bank. You also need to know where the money is coming from and where it is being spent.

It may seem crazy, but people are funny about their money – even the business owners I’ve worked with who were, at first, reluctant, uncomfortable, scared, anxious, despondent, you name it, about looking honestly at their financials.

This despite them knowing that this information would help them make better decisions, lift a huge burden of worry, and realize more profit!

Some 82% of businesses that fail, as is described by Jessie Hagen of U.S. Bank, have mismanaged their cash flow. But, why is it so hard to manage?  What is the difference between profit and cash flow?  How do you manage cash flow?

What is Cash Flow?

It is the amount of money (or cash) moving in and out of your business over a period, usually every month.

All your income includes immediate cash transactions, e.g. your customer handing you cash. Or the cash being deposited into your account. Plus, what you are paying to a vendor in a similar manner.  In accounting terminology this is broken down into Accounts Receivable and Accounts Payable.

Accounts receivables are what your customer owes you. This could be something like a charge account for frequent customers.  This needs to be factored into your cash flow assessments.

Accounts payables are what you must pay for expenses. This includes such items as your rent, loans, taxes, etc.  These are the cash withdrawals that your business must pay for to stay in the black.

The aim of course is that you are going to have a “positive cash flow,”. This means that you have more money coming in than going out.

This is where cash flow management becomes important!

Why Should you Care?

It is essential that you have a clear idea of what expenses need to be paid to keep the business open.

For example, if you know that you have a big, necessary payment coming up on something that cannot be put off (say, sales tax, for example). It would be foolish to try to do some major improvement work on your premises.

The top reason why most businesses fail is because of Lack of cash. This applies to all types of business and large as well as small. The number one reason that start-ups fail is due to lack of cash reserves or operating capital.

Some businesses are seasonal, so they have an even more reason to know where the money is. This means that if for example that you sell Christmas stockings, you only have one busy period. But that period needs to be able to keep the business running all year round so that when Christmas rolls around you are ready.

Comparing Profit and Cashflow.

All businesses need to understand that Profit is not the same as cash flow. A successful business will need to have positive profit as well as positive cash flow.

Profit is the amount of money earned after all expenses are deducted.

Cashflow is the amount of money on hand at any given time, and thus good to spend, going forward.

So, you need to make sure that spending priorities are well aligned with your cash flow.

Negative cash flow occurs when a business’s needs to buy inventory.  Buying large quantities of inventory at a time will reduces their money or cash on hand.   Until they sell the inventory, even with a healthy profit margin, they must still wait until they sell off the inventory before that profit is realized.

How to Maintain Cash Flow Balance

  1. Be aware of your cash inflow.

It is important to be aware of where you stand with your cash inflow.

Focus on Cash Flow Over Profits

You as a business owner should use your breakeven point as a benchmark.  After you reach breakeven and your business is profitable, you still need to manage cash flow.

  1. Collect Accounts Receivables Quickly

Obviously, the faster you can get the money owed to you by your customers in your bank account the better!

The 10 Absolutely Must-Follow Cash Flow Rules.

By Philip Campbell in Inc. September 2004

When it comes to properly managing the cash flow of your business, the best way to move from where you are now to where you want to be is to get a clear picture in your mind of the benefits you will enjoy as you take control of your cash flow.

The benefits include:

Increasing the likelihood that your business never runs out of cash.

Eliminating the constant worry associated with not knowing what your cash balance is right now or what you expect it to be soon.

Improved relationships with your vendors because they are no longer banging on your door demanding that their past dues invoices be paid immediately.

The ability to see cash flow problems long before they can happen.

In short, you free yourself to focus your unique talents and abilities on growing your business rather than fighting the constant cash flow fires.

Here are 10 cash flow rules you can implement immediately that will transform the way you manage your business from this point forward. These rules are the keys to creating the kind of financially successful business you deserve.

  1. Never Run Out of Cash.

Running out of cash is the definition of failure in business. Make the commitment to do what it takes so it does not happen to you.

  1. Cash Is King

It is important to recognize that cash is what keeps your business alive. Manage it with the care and attention it deserves. It is very unforgiving if you do not.

Remember, Cash Is King, because No Cash = No Business.

  1. Know the Cash Balance Right Now.

What is your cash balance right now? It is critical that you know exactly what your cash balance is.

Even the most intelligent and experienced person will fail if they are making business decisions using inaccurate or incomplete cash balances. That is the reason why business failures are not limited to amateurs or people new to the business world.

  1. Do Today’s Work Today.

The key to keeping an accurate cash balance in your accounting system is to do today’s work today. When you do this, you will have the numbers you need – when you need them.

  1. Either You Do the Work or Have Someone Else Do It.

Here is a simple rule to follow to make sure you have an accurate cash balance on your books. You do the work or have someone else do it.

Those are the only two choices you have. The work must be done. It is like mowing the lawn. You cannot just ignore it. Someone must do it. That means either you do it or have someone else do it.

  1. Don’t Manage from the Bank Balance.

The bank balance and the cash balance are two different animals. Rarely will the two ever be the same. Do not make the mistake of confusing them.

It is futile (and frustrating) to attempt to manage your cash flow using the bank balance. It is a prescription for failure. You reconcile your bank balance. You do not manage from it.

  1. Know What You Expect the Cash Balance to be Six Months from Now.

What do you expect your cash balance to be six months from now? This one question will transform the way you manage your business.

This question really gets to the heart of whether you are managing your business or whether your business is managing you.

  1. Cash Flow Problems Don’t “Just Happen.”

You would be shocked and amazed at the number of businesses that fail because the owner did not see a cash flow problem in time to do something about it.

The key is to always be able to answer the question – what do I expect my cash balance to be six months from now?

  1. You Absolutely, Positively Must Have Cash Flow Projections.

Cash flow projections are the key to making wise and profitable business decisions. They give you the answer to the all-important question from Rule # 7.

It is impossible to run your business properly without them.

  1. Eliminate Your Cash Flow Worries So You Are Free to Do What You Do Best – Take Care of Customers and Make More Money.

This is the real key to your success in business. The reason you have to make sure you have the cash flow of your business under control is so you are free to focus all your time and talents where you can make the most difference in your business.

When you have your cash flow under control, you are free from worry, doubt, and concern. You have the cash flow information you need to make sure that everything you do each day in your business is clearly focused on making your business better.

You have the information you need to measure your progress using the amount of cash you generate (and keep) for yourself and your business as your ultimate financial measurement. In subsequent columns,

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2 thoughts on “Why You Need a Positive Cashflow”

  1. Hi Alron, your post was worth a read.

    There is a lot of crucial information there and even though much of the content written I am familiar with, there are some parts in your post that I find crucial in running a successful business.

    In particular, I underestimate the importance of cash flow and in your post you helped me realize the importance for a successful business to have a healthy cash flow.

    Keep up the good work


    • Thanks for the comments. Running a business is difficult so I am trying to make it as easy as possible. If you have any suggestions for other topics you would like me to cover please let me know.


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