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Cash flow basics for small business owners

Profit is an opinion, cash is a fact. The essentials of watching, protecting and planning your cash.

Many profitable businesses fail because they run out of cash. Cash flow is the timing of money coming in and going out, and getting a handle on it is one of the most important things an owner can do. This guide covers the basics; for your own situation, talk to a qualified accountant.

Be thou diligent to know the state of thy flocks, and look well to thy herds. (Proverbs 27:23, KJV)

Know three numbers every week - Cash in the bank today. - Money customers owe you (receivables) and when it is due. - Money you owe (payables) and when it is due.

Build a simple 13-week forecast In a spreadsheet, list the next 13 weeks across the top. For each week, write the cash you expect to come in and go out. Any week that goes negative is a warning you can act on now, not a surprise later.

Speed up money coming in - Invoice the same day the work is done. - Ask for deposits on large jobs. - Make it easy to pay: card, bank transfer, online links. - Follow up on late invoices kindly and promptly. Put a reminder in your to-dos.

Slow down money going out (fairly) - Pay on the agreed date, not early, unless there is a discount. - Review subscriptions every quarter and cancel what you do not use. - Negotiate terms with suppliers before you need to.

Build a reserve Aim for a cash reserve that covers at least a few months of essential costs. Put a set percentage of every payment into a separate account.

Be careful with debt The rich ruleth over the poor, and the borrower is servant to the lender. (Proverbs 22:7, KJV)

Borrow for things that produce income, not to cover ongoing losses. Know exactly how you will repay before you sign.

Steady growth wins Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase. (Proverbs 13:11, KJV)