A business can be profitable and still run out of cash. Profit is what you earn on paper. Cash flow is about timing: when money actually comes in, and when it goes out.
See it coming: a simple forecast
Most cash problems are visible weeks ahead, if you look. A cash flow forecast is a table with one column per week or month.
- Money in: payments you expect, and when.
- Money out: rent, salaries, suppliers, tax, loan payments, and when.
- The balance at the end of each period.
Update it weekly. When a future week dips too low, you have time to act: chase a payment, delay a purchase or talk to your bank.
Get paid faster
- Invoice the day the work is done. Every day you wait is a day added to when you get paid.
- Ask for deposits. Part of the price up front, especially on larger jobs.
- Shorten your payment terms. 7 or 14 days instead of 30. See payment terms examples.
- Make paying easy. A payment link on every invoice, and the common payment methods.
- Follow up on late invoices early. A friendly reminder a day after the due date, then on a schedule. There are templates for overdue invoices.
- Bill in stages on long projects. Payments at milestones instead of one bill at the end.
Spend more slowly
- Ask suppliers for longer terms. Paying in 30 days instead of 7 keeps cash with you longer.
- Keep less stock. Stock on a shelf is cash you cannot use. Order closer to when you need it.
- Spread big costs. Lease or pay in instalments where it costs little extra.
- Review subscriptions. Small monthly tools add up. Cancel the ones you do not use.
Build a buffer
- Keep a cash reserve. Many advisors suggest enough to cover a few months of fixed costs. Build it slowly from good months.
- Arrange credit before you need it. A line of credit is far easier to get when the business is doing well than in a crisis.
Know your numbers
Cash flow problems often hide a pricing problem. If you are always short, check whether your prices cover your costs. See how to calculate profit margin and how to price your services.
Make it a weekly habit
Look at the cash in the bank, the invoices due and the bills coming up, every week. It takes ten minutes, and it fits into a weekly review. Most cash crises happen to owners who only look when something is already wrong.