Cash flow management: growing without going broke

Cash flow is the movement of the real money entering and leaving a business. Cash flow management is the job of forecasting these ins and outs and ensuring you always have the cash to cover your payments. It differs from profit: profit is an accounting concept, cash is the real money in your hands.

Why are profit and cash different?

When you make a sale, profit is booked immediately — but if you’ll collect the money in 90 days, you can be cashless for those 90 days despite the profit. Likewise a large stock purchase doesn’t affect profit but drops cash instantly. This is why even profitable businesses go broke if they can’t manage cash.

4 habits that protect cash flow

• Age your receivables: know which money arrives when.
• Track cheques separately: don’t spend money you don’t hold.
• See your payment and collection plan together: build the forward position.
• Balance terms: keep your receivable terms shorter than your payable terms.

A pre-accounting program shows ins, outs and expected collections-payments in one place via a cash-flow report. So you answer “will I cover next month’s payments?” with data, not a guess.

Growth needs cash. Even the fastest-growing businesses can be sunk by growth itself if they can’t manage cash flow. Making cash flow visible is a precondition of healthy growth.