You have probably heard the phrase “cash flow is king” in business circles. But what does it really mean for your small business in practical terms?
If your business were a body, cash flow would be the blood, keeping things alive, moving, and healthy. Without it, even a profitable business can run into serious trouble.
Let’s break down why cash flow matters more than most business owners realize.
What is Cash Flow?
Cash flow is the movement of money into and out of your business. It is not just about sales or invoices. It is about when the money actually lands in your account and when it leaves to cover expenses.
- Positive cash flow: More money coming in than going out
- Negative cash flow: Spending more than you are earning
Cash flow is what determines whether you can pay rent, make payroll, and reinvest in growth, even if you are turning a profit on paper.
Understanding Why Cash Flow is Different From Your Profit.
Profit Does Not Pay the Bills
A company can show a healthy profit on its income statement while still being cash poor. Here is a quick example:
Let’s say you sign a $50000 contract. Great news, right? But if your client takes 90 days to pay and your bills are due next week, you are in a tight spot.
Your profit also does not take into account cash flows from the balance sheet. Let’s say you pay $3,000 a month to pay down a loan. This will not be reflected in your profit and loss statement and needs to be accounted for separately in your cash flow.
That is the power of cash flow. It reflects reality, not just accounting figures.
Common Signs of Cash Flow Problems
Watch out for these red flags:
- You rely heavily on a line of credit
- You wait for customer payments before paying your suppliers
- You have delayed employee pay more than once
- You cannot predict your bank balance two weeks out
- You are growing but still feel broke
If any of this sounds familiar, it is time to take a serious look at your cash flow.
How to Improve Your Cash Flow
1. Know Your Numbers
Start with a proper cash flow forecast. You need a weekly or monthly projection of all expected cash inflows and outflows. Guessing is not good enough.
2. Speed Up Incoming Payments
- Send invoices immediately
- Offer small discounts for early payments
- Follow up consistently on overdue accounts
3. Delay Outgoing Payments (Strategically)
Negotiate better terms with suppliers. Even an extra 15 days can make a huge difference to your cash position.
4. Time Big Expenses Carefully
Avoid large purchases or investments right before a big payroll run or tax payment. Align your spending with your cash flow cycle.
5. Work With a Proactive Accountant
The right accountant will not just prepare your taxes, they will help you forecast cash flow, reduce financial risk, and make smarter decisions for growth.
Why Cash Flow Matters to Small Business Owners
Cash flow gives you control, flexibility, and peace of mind. Without it, you are constantly reacting instead of planning. With it, you can hire, expand, and invest in your business on your terms.
At Vistance Accounting, we help small businesses take charge of their cash flow with proactive financial planning, forecasting, and expert advice.
Need Help With Cash Flow?
Do not wait until it is a crisis. If you are ready to get serious about managing your cash flow, we are here to help.
Contact us today to schedule a free consultation.
