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Projected cash flow

Top 9 Strategic Ways to Keep an Eye on Your Cash Flow (Step by Step guide)


Believe it or not, your business cash flow is critical. Keeping an eye on your business capital can prevent several shortcomings in your business. It’s imperative to be as profitable as possible; however, it does not come as simple as it seems.


As a business owner, you will have to prep and monitor your business to avoid losing as much money as possible. The worst thing you can do is leave money on the table or lose money. That is why it is in your best interest to keep an eye on cash flow.


What is Cashflow?

Cash flow is the transaction of money that comes in and out of your business. You can break down cash flow into two categories, inflow and outflow. Note that your business’s revenue, sales, income from interest, or any additional funds are considered cash inflow. Money coming out is known as outflow; these are expenses, bills, loan payments, or transactions decreasing funds to your business. A business cash flow can either be negative or positive.


Why is cash flow important for small businesses?

Cash flow is essential for small businesses because it is the actual determination of whether your business will succeed or fail. Many small businesses fail within the first five years in operation due to money problems. Let’s face it; A negative bank account drastically limits an individual’s ability to do anything. BUTTT, with extra funds to spare, you’ll feel like you’re on top of the world! And if you’re anything like 95% of the world, you’ll want to splurge a bit! But whatever you do, don’t splurge.


The same goes for a business! If a business’s cash flow is negative, it means more money is going out rather than coming in. Which will cause the company to be financially stressed. Many new companies go through this phase early on in their journey. Depending on how proactive you are as a business owner, you can experience a negative balance for a few months to a few years.


A negative cash flow can also put a strain on your business, where receiving extra funds may seem difficult. It is less likely to convince investors to invest in your company or qualify for a loan with a negative inflow. Banks are generally afraid to lend money to businesses without a solid income base, let alone a positive cash flow. Usually, banks find that lending to struggling businesses may result in late debt payments or forfeiture of payment. If your company cannot financially sustain itself or indulge in financial activities, it will be impossible to pay for operating activities. Which in turn may force you to shut down because there’s not have enough cash on hand.


A positive cash flow is an indication that the business is moving in the right direction. It usually means there’s more money coming in than going out. An example is if revenue is higher than expenses, meaning the business WILL have enough cash on hand.


Having a positive inflow can help your business scale as you can reinvest excess income, purchase better quality products, or invest in different avenues to bring in additional revenue. The sky is the limit if you can maintain a positive cash flow; however, beware that it is positive and not an illusion. Some businesses incorrectly note their expenses, not realizing to account for certain costs.


Keeping tabs on all expenses, bills, loan payments, interest payments, or upcoming expenses will help paint a realistic picture rather than create that illusion.


How do businesses maintain healthy cash flow?

A business can maintain a healthy cash flow by keeping a good sense of record-keeping, making sure profits are up, and calculating the projected inflows and outflows of the company. Let’s touch on each topic below.


Keeping a good sense of record-keeping

Having a grip on inventory, expenses, revenue, and so forth will keep you on track with where your business is heading. It will allow you to make the necessary changes to maintain a positive inflow of cash. If your business books are messy and out of order, you’ll overspend and have a negative cash flow.


Every company should know the state of their business cash. This will allow you to identify and address any future issues that may emerge. You’ll be able to prevent future problems like going out of business or overspending on unnecessary inventory. Your company’s cash is one of the core foundations of your business. Keep in mind, not having an excellent Bookkeeping system in place can do more harm than good.


If you’re unable to maintain your books, consider hiring a professional accountant like myself. Feel free to contact me through QuickBooks Online Accountant or book a strategy session with me here.



Making sure your business profits are up

We all want our business to be profitable, but it does take work. To maximize your business profits, you’ll need to do a couple of things.


First, you’ll need to manage your account payables.

Manage your account payables by having processes in place to contact customers to remind them to pay you. You can keep track by sending weekly emails or hiring an Accounts Payable Specialist. Also, think about charging late fees to those who pay late to encourage on-time payments. Try providing discounted rates to incentivize early payments to get customers to pay before their deadline.


Second, try paying your vendors on time to avoid late fees.

In the same way, you have processes to receive payments on time; other vendors do the same. Pay attention to incentives so you can take advantage of discounted rates. Also, keep in mind that you have the option to shop around. If you notice a vendor’s price is above your budget, and you can get the same quality item elsewhere for less, explore that option.


Third, create a cash flow budget.

A budget will help you keep your business on track. You’ll know exactly how much to spend, what you will be spending your money on, and how often you’ll need to spend on certain items. Of course, there are always unexpected expenditures; however, the best thing about a budget, you can revise it as often as you need to. You’ll be able to take funds out of one area and place it elsewhere to keep your business finances as accurate and cost-effective as possible.


Calculating business projections

Calculating your business projections is essential. You’ll want to control your finances and not have your finances control you. With that said, how can you forecast your business projections? Well, it’s simple!


Construct a cash flow analysis

A cash flow analysis is a way to review and understand your working capital. Working capital is the difference between your current assets minus your current liabilities (Working Capital = Current Assets – Current Liabilities).

If the outcome is positive, it means you’re able to pay off your current liabilities, which means your business is profitable. If it is negative, it means your current assets are not enough to cover your current liabilities, which means your business is not profitable.


You can also run a cash flow analysis by calculating your working capital ratio. The working capital ratio formula is current assets divided by current liabilities (Working Capital Ratio= Current Assets / Current Liabilities). If the ratio equals one or more, your business is in good standing. A 1 or above means that your current assets can cover your current liabilities, and the higher it is, the better.


To run this calculation, you must understand what you’re looking for in determining the current asset and current liability. Let’s take a look down below.


What are Current Assets?

Current assets are assets like cash or assets that can convert into cash within a year. It can be the balance in your bank account, stocks owned by your business, inventory that can quickly sell for cash, mutual funds, bonds, accounts receivables, pending sales of any assets, etc. If you can convert it into money within the year, it is considered a current asset.

What are Current Liabilities?

Current liabilities are all the bills and expenses the business owes or will need to function within the 12 months. Current liabilities can include accounts payables, rent, office expenses, office supplies, utilities, short-term loans, interest payables associated with loans, materials, or the purchase of inventory, etc. If it is a debt or expense owed within the year, it is considered a current liability.

Current assets and current liabilities

Now that we got that out the way, back to constructing a cash flow analysis. Cash flow analysis allows you to see the current state of your business and paint a clear picture of how you can project future outcomes. Sometimes, all it takes is laying out your finances to see what needs to be adjusted and what is necessary for your business to run.


Next, Examine Your Business Statement of Cashflow

The statement of cash flow lets you know exactly where your money went. It shows the movements between transactions magnifying your business’s inflow and outflow, allowing you to see its current financial state. Many business owners look at their Income Statement and see profits; however, their bank account says something different. Well, that, my friend, is the power of the statement of cash flow. You’ll know what’s holding up your money (which can be the accounts receivable), where you spent your money, what caused your bank account to have a negative balance, and examine ways to change the outcome.

Investing activities

Projecting inflows and outflows

A great way to forecast your business cash flow is by projecting your inflows and outflows. You can project inflows and outflows on a weekly, bi-weekly, quarterly, or yearly basis. To do this, you’ll need your company’s last quarter and previous year’s income statement in hand. If you don’t have an actual income statement, you can subtract your past income from your past expenses. That way, you’ll be able to determine the beginning cash for the new period.


You then use the information from your income statement or the data you gathered when determining your previous income and expenses and gauge your company’s future income and expenses. We use earlier data because, most times, income and expenses slightly vary from quarter to quarter unless there was a drastic change. You then add the beginning cash by the projected income minus the projected expense. Be sure to factor in any upcoming loans, big purchases, or anything else that may affect the income/expense for that particular period.


Now let’s show you the projected cash flow formula, so it all makes sense. Cash Flow Forecast = Beginning Cash + Projected Inflow (Income) – Projected Outflow (Expenses). The difference will be the projected cash in hand at the end of the calculated period. If you need help with your business cash flow, feel free to inquire about our services via email.


What are the techniques of cash management?

Cash management for a business is the same as cash management for an individual. Preparing a cash flow budget and sticking to that budget is the number one technique a business owner can do. You can create a best-case scenario budget, a worst-case scenario budget, or even an aggressive budget to guide you through the year. As mentioned previously, you can adjust and revise where you see fit.


Next, you can revisit your financials every month.

Closely monitoring your spending and income can prevent you from incurring unnecessary costs. It also helps you determine what is selling and what isn’t to avoid purchasing useless inventory. Managing inventory is crucial as it can be the number one cause of wasted funds.


Only purchase/spend when necessary.

That goes for bills, supplies, equipment, inventory, etc. Unless you purchase something that will make you more money or save money, think twice before getting it. You have to ask yourself, “Do I truly need this right now, or can it wait?”.


Reduce hours when needed.

Although what I’m about to say maybe frown upon, pay attention to useless positions or over usage of time. Sometimes a company may be overstaffed, causing financial output that may not be conducive to the business. Always hire when necessary and beneficial to your bottom line. Laying off may not be ideal; however, think about reducing hours during off-peak time.



A business’s cash flow is the bread and butter of the company. Reviewing the company’s financials, creating a cash flow budget, and projecting the company’s inflow and outflow can help you keep an eye on and track your business cash flow. Manage inventory as much as possible as overspending on merchandise or products can cause wasted funds. Also, reduce hours when necessary. Reducing hours can help save money during off-peak time.



If you would like to book a strategy session with me, feel free to book a call here.