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8 Essentials For a Healthy Cash Flow

Piggy bank can't help your cash flowI read a book recently called Never Run Out of Cash by Philip Campbell. If you’re a business owner then “cash flow” is a regular part of your life, which is exactly what this book deals with. I’ve always had a pretty good handle on cash flow and how to manage it, but this book put things in a whole new perspective.

I am sure you have heard of the saying “Cash is King”. Well in small to medium sized business, this couldn’t be truer. I wanted to take a few minutes to outline some of the things that I’ve learned over the years about cash flow, and also borrow a few ideas from Campbell’s book. I hope some of these tips will help to get your cash flow under control so you can make millions of dollars and take me out to lunch (just kidding, kinda). Anyways, let’s get to it.

1) Bank Balance vs. Cash Balance

I can’t tell you how many business owners I have talked to that think their actual cash balance and the balance in their bank accounts are the same. I completely understand where the confusion would come in so hopefully we can clear things up.

Let me illustrate the difference:

Let’s say your bank balance is $15,000 but you wrote a check yesterday for $10,000 for supplies. Is your true cash balance $15,000? Of course not! Your true cash balance is actually $5,000. This is a simple concept but extremely important to understand. Why? Let’s say in the same scenario you went out to buy a truck for $12,000. If you used the bank balance ($15,000) you would have plenty of cash. But your balance is actually $5,000. See how this can become an issue pretty quickly?

You may think this is elementary, and it is, but that doesn’t mean people don’t get it wrong on a regular basis. Glancing at your bank account should never be your financial guide.

2) Accounts Receivable Collections

The rate at which you collect the money you are owed affects your cash flow. I don’t think anyone would disagree with that. However, we get so caught up in other things that we forget to collect the money we are owed. Completing a job and billing the customer is only the first step. If you don’t collect your cash, what’s the point? Keep an eye on your AR balance at all times and make sure to stay on top of customers. I can almost guarantee a client that owes you money won’t remind you if you forget, and the longer you wait the more difficult it will be to get what you’ve worked for. Create a multi-step process for yourself to ensure payment.

3) Tracking Accounts Payable

How many times have you gone into an office and seen a huge stack of invoices in the “to be entered” pile? Maybe you even have a pile like this right next to your computer as you’re reading this! As monotonous as entering invoices might be, it’s important to enter invoices into your system as soon as they come in. Keep a close eye on your Accounts Payable schedule in order to see what bills are about to be due. You may think you have a ton of cash in the bank right now but if you have a pile of bills due at the end of the week, all that cash is going to disappear before you know it.

4) Cash Flow Projections

In the book, Campbell suggests knowing what your current cash balance is at all times and being able to project your balance out 6 months. This is huge for so many reasons, but to put it simply, just make sure you project your cash as far in advance as you need. The decisions you make today should and will be effected by the future state of your cash flow— don’t shoot yourself in the foot.

5) Small Cash Flow Issues

Many people have a misconception that cash flow issues are related to specific large events. Now, sometimes this can be true but more often than not it is a combination of poor record-keeping, bad policies and lack of clarity that lead to the real problems. More often than not it is usually a few small issues that snowball over time and lead to a major problem. Don’t just look for the big issues while ignoring the possibility that your smaller issues are the big issue.

6) Near Future Looks Like the Recent Past

Now, this concept comes directly from the book. When working on your projection, remember that things typically don’t change that rapidly. If you made $100,000 in the first 6 months, chances are you are going to come pretty close to that number in the next 6 months. Obviously some businesses are cyclical (seasonal) and there can be major changes, but a good rule of thumb is to stick with what has happened recently. Be realistic and make your recent history a part of your projections: It will keep you out of so much trouble.

7) Stop Projecting Your Revenue Too High

This is where most business owners get in trouble when preparing a cash flow projection. Most business owners are confident in their business and the growth potential, which is great. But sometimes this confidence can be to a fault; keep in mind #6 when you are projecting the revenue for your business. Always be conservative. Of course it’s okay if you have made this mistake in the past, just make the appropriate change(s) moving forward.

8) Understand Your Revenue Cycle

Every business is different. Some have very consistent revenue each month and some have huge peaks and valleys. Just be very aware of your business and how it flows. Let’s say you make all your money in January-March but in June-August you don’t have any sales at all. In the winter months I am sure you are flying high and think you have plenty of cash, but you will need all that cash to stay afloat for the summer months so don’t go spending it all or you will run into major issues. A solid cash projection will help you to stay on top.


We’ve talked about a lot this week. Hopefully you have picked up a few things you can use in your own business or life. Sometimes all we need is a frame of reference, and I hope his post has given that to you.

Now, if cash flow is an issue for your business, let’s talk more. We have a great system that we can implement to help get you on track. Give me a call or shoot me an email so we can chat for a few minutes.

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