Cash Flow: It's not Magic, But It Feels Like It
So you've made a sale. You've made a lot of sales.
Your income is starting to look like something more than just tattered scraps.
You're rolling in cash!!
Right?
Not so fast.
Every successful entrepreneur knows that profit and cash are two different things. Many small business owners have to learn this the hard way.
You can be profitable on paper, but still struggle to pay rent.
Or worse, you can be raking in revenue but still run out of cash. It usually happens at the worst possible moment, too.
Don't learn this lesson when it's time to pay your team. Your employees can't buy groceries with money you thought you had ready for payroll.
Cash flow isn't about how much money you make, it's about how much money you keep moving. Let's break this down together and learn how to keep your business in motion.
Why Cash Flow Matters More Than Profit
Profit is what looks good on paper. Cash flow is what you have in your wallet.
The former is bragging rights, while the latter is paying rent.
🠊 You can show a profit on paper and still have an empty bank account. This is how "successful" businesses go broke.
🠊 Expenses don't wait for clients to pay their invoices. If your cash inflows and outflows don't sync up, cash on hand will always be a guessing game.
🠊 Cash flow is the tangible that enables you to invest, hire personnel, and grow the business. If you don't have a buffer in place, one slow month can cause legitimate panic.
If your business is a bathtub, then the water flowing in is your income. Cash flow management determines whether or not the water actually fills the tub, or just goes straight down the drain.
The Most Common Cash Flow Traps:
❌ Thinking Revenue = Money in the Bank
Just because you sent an invoice doesn't mean you have the payment. Customers pay late... sometimes not at all. Expenses don't wait.
❌ Spending Money You Don't Have Yet
Your reach can exceed your grasp when you spend future income on current expenses. You need tomorrow's money for tomorrow, otherwise you could get yourself into a real pickle.
❌ Ignoring Payment Terms
If you give your clients 60 days to pay, but your vendors only give you 15, guess who's going to run out of money first?!
❌ Not Planning for Surprises
The unexpected happens. More often than any of us would like. Equipment breaks, prices go up, taxes... exist. If you don't have a safety net, unexpected costs can sink you.
How to Keep Your Cash Flowing... and Your Sanity Intact
✅ Speed Up Payments
Invoice immediately, and follow up on those overdue payments. Consider incentives for early payment—it's a great motivator!
✅ Delay Outflows When You Can
Negotiate better terms with suppliers to gain a little breathing room. Pay your invoices owing closer to their due date, without being late. Avoid any spending that isn't a need.
✅ Build a Buffer
Plan to set aside enough money to keep that safety net ready for you. It doesn't have to be big. Just enough to stave off a full coronary event when an emergency hits.
✅ Track All of Your Cash Flows
Just as we've said before: it's about more than just profit. Track all of your money to get a clear picture of all of your inflows and outflows. While I don't recommend a simple spreadsheet for all of your finances, it can do wonders here.
The goal? No unexpected dry spells.
The Bottom Line
Your business doesn't run on revenue, it runs on available cash. Master cash flow, and you'll do more than just survive—you'll have the freedom to grow without constant financial stress.
Next time, we'll tackle bookkeeping for charities and nonprofits—because it's a whole different world when you handle restricted funds and grant money.
Written by Lyle Mustard
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