Cash Flow
What is Cash Flow?
Cash flow is the net movement of money into and out of a business over a specific period. Positive cash flow means more comes in than goes out. Even profitable small businesses fail when cash flow turns negative — which is why weekly forecasting matters more than monthly profit-and-loss statements.
Definition
Cash flow includes operating (day-to-day), investing (assets), and financing (loans, equity) activities. The cash-flow statement reconciles net income to actual cash position.
Key Facts
- 82% of small business failures are attributed to cash-flow problems (US Bank).
- A 13-week rolling forecast is the SMB standard.
- Cash flow ≠ profit — timing is everything.
Practical Example
A growing agency lands a $60K project but is invoiced net-60. A 13-week forecast reveals a payroll shortfall in week 9. They negotiate 50% upfront and avoid a bridge loan.
Why It Matters
Profit is theoretical. Cash pays payroll.
How It Works
- 1Track incoming receivables and outgoing payables by week.
- 2Model best/expected/worst-case scenarios.
- 3Update the forecast weekly with actuals.
- 4Trigger action rules (financing, cost cuts) at defined thresholds.
Advantages
- Early warning system for financial trouble.
- Confidence to invest or hire when runway is safe.
Common Mistakes
- Confusing profit with cash.
- No forecast — only rear-view accounting.
- Ignoring seasonality.
Frequently Asked Questions
How much cash runway should a small business keep?
How much cash runway should a small business keep?
A common floor is 3 months of operating expenses; 6 months is safer for seasonal or project-based businesses.
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