Cash flow: how to manage the flow of money in a small company

A company can be profitable on paper and still go bankrupt – if it runs out of cash. Managing cash flow, that is, the flow of money, is therefore more important for survival than profit itself. Here are the basic principles.

Profit is not cash

Profit arises when revenues exceed costs. Cash is what you actually have in your account. An invoice issued today is revenue, but the money may arrive in 60 days – and in the meantime you have to pay wages and suppliers.

Monitor due dates

Manage the due dates of both receivables and payables. Ideally, you collect from customers before you have to pay your suppliers. Set clear payment terms and keep track of overdue invoices.

Plan ahead

Put together a simple cash flow forecast for the coming weeks and months – expected income and expenditure. This way, you will spot the risk of a cash shortfall before it happens.

Build a reserve

A financial cushion equal to several months of fixed costs will help you ride out seasonal fluctuations and late payments.

Deal with non-payers actively

Send payment reminders promptly and systematically. Consider trade credit insurance or advance payments for larger orders. Prevention is cheaper than collection.

Use reporting

A regular overview of receivables, payables and account balances gives you control. Modern tools display cash flow in real time, so you make decisions based on up-to-date data.

Related articles: How to put together a business plan that works, Financial indicators every entrepreneur should track, Receivables management: how to avoid non-payers.

Frequently asked questions

How often should I monitor cash flow?

In a small company, ideally weekly, and even more often when liquidity is tight. The key is not to be caught by surprise.

Will an accountant help me with cash flow?

Yes – from your accounting data we can prepare overviews of receivables and payables and a liquidity forecast that will make your decisions easier.