Cash flow is the lifeblood of any business. Even profitable companies fail when they run out of cash. Here's how to manage yours effectively.
Cash Flow vs. Profit
Profit is income minus expenses. Cash flow is actual money in and out. You can be profitable on paper but still face cash shortages if customers pay late or you have high upfront costs.
Common Cash Flow Problems
- Late-paying customers – Money owed but not received
- Seasonal fluctuations – Busy and slow periods
- Excess inventory – Money tied up in stock
- Poor expense timing – Bills due before income arrives
Strategies for Better Cash Flow
- Invoice immediately – Don't delay billing
- Offer early payment discounts – 2% off for payment within 10 days
- Request deposits – Especially for large orders
- Negotiate supplier terms – Pay in 30-60 days
- Monitor receivables weekly – Follow up on overdue accounts
Cash Flow Forecasting
Predict your cash position for the next 30-90 days:
- List expected income and timing
- List known expenses and due dates
- Calculate running balance
- Identify potential shortfalls
- Plan actions to cover gaps
Emergency Cash Buffer
Keep 2-3 months of operating expenses in reserve. This protects against:
- Unexpected expenses
- Slow sales periods
- Customer payment delays
- Economic downturns
Using Tawala for Cash Flow
- Track receivables and payables in one place
- See daily cash position at a glance
- Get alerts for overdue invoices
- Generate cash flow reports