Published: October 31, 2023 | Updated: November 7, 2023

Cash flow: Is it really that important?

Deborah Dickerson

Deborah Dickerson

Business owners, did you know you could generate healthy revenue and run out of cash? You could also have great margin and profit and still run out of cash! When you run out of cash you are out of business.

50% of all start-ups fail in the first 5 years and 82% of all businesses fail due to the lack of cash. Cash is precious to business success. It’s the lifeblood of a business. No cash, no business.

In this article, we will cover the keys to good cash flow management so you can stay in the game and thrive.

What is cash flow?

• Key factors in managing cash flow

• What areas to manage for optimal cash flow

• What is cash flow?

Cash flow is all the inflows and outflows of cash over a specific period, a month, a quarter, or a year. It encompasses various financial transactions, including revenue from sales, investments, loans, and operating activities. On the inflow side, cash flow includes customer payments, interest income, and capital injections. On the outflow side, it covers expenses such as salaries, rent, supplier payments, loan repayments, and taxes. Effective cash flow management involves ensuring that more cash flows into the business than flows out, maintaining liquidity, and safeguarding the company's financial stability.

Key factors in good cash flow management

• Accurate cash flow forecasting is crucial, allowing you to anticipate periods of surplus and deficit. Plan accordingly for the deficit periods, likely in seasonal businesses.

• Maintaining a cushion of working capital ensures liquidity for day-to-day operations. Timely invoicing and diligent debt collection help speed up cash inflows while negotiating favorable payment terms with suppliers and controlling discretionary expenses can optimize cash outflows. Don’t be a bank for your customers!

• Planning a contingency fund for unexpected expenses is essential or have a quick, inexpensive way to generate cash to cover that unexpected expense.

Finally, regular financial analysis and adjustments to your cash flow strategy will ensure your business remains adaptable and financially robust in a dynamic economic environment. This includes creating a regular habit of reviewing your financials, a key to creating a successful business.

What actions you can take to improve your cash flow?

Forecast with Precision. Imagine your cash flow forecast as a weather report for your business. Predict income and expenses, including those surprise tempests like seasonal fluctuations. This way, you won't get caught without cash when you need it most. It’s no fun scrambling for cover.

Efficiency matters. Your business should be like a well-oiled machine when it comes to financial transactions; timely customer invoicing, active AR management, and solid credit policies all lead to cash flowing smoothly like a lean money-making machine.

Borrow wisely. Debt is not a bad word. Properly managed it can support rough spots or support expansion when invested properly. Keep your debt manageable, and you'll always have a seat at the financial table.

Strategic budgeting and expense control. Create a budget that guides your spending while scrutinizing all expenses. Identify discretionary costs that can be trimmed without impacting core operations. Negotiate better terms with suppliers.

Data-driven decisions. Regular financial analysis is like checking your car's dashboard while driving. Create a financial dashboard that has some leading and lagging indicators specific to your business or industry. Analyze your financial data regularly to ensure you're on the highway to financial stability and profit.

In closing, take command of your business's cash flow today. Start by analyzing cash flow statements to spot trends. Accelerate receivables through diligent collections while efficiently managing your inventory. Cut unnecessary expenses, and manage working capital judiciously to ensure operational resilience. Your financial success begins with strategic cash flow management. For a deeper dive, attend the NISBDC Cash Flow webinar on Nov. 15. Register at

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Deborah Dickerson is a Senior Business Coach at North Idaho College's Small Business Development Center. The NISBDC’s mission is to help accelerate your business success. Our team of retired executives provides no-cost, confidential business coaching to owners to improve performance and profit in every area of business. Reach us at 208-665-5085, or visit