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How to manage cash flow in a small business

by OnDeck Australia,   May 02, 2023

Cash flow is one of the most important aspects of any business. It’s also one of the trickiest to manage, especially for smaller businesses with limited resources and budgets. But with a few strategic steps, you can ensure your cash flow stays healthy and your business remains on track.

For a full rundown on cash flow, read our blog What is Cash Flow? but simply put, cash flow is the movement of cash into and out of your business either by spending on business operations or receiving due invoices.

Important cash flow basics

What is cash flow management?

Cash flow management is the process of tracking and managing your business’s financial transactions, such as incoming payments and outgoing expenses. This can include things like invoicing customers, paying vendors, and following up on overdue accounts receivable.

Cash flow management is usually done using two documents:

  • cash flow statement shows how much cash a company has generated and used during a specific period, letting you see your business’s history.
  • cash flow forecast predicts future cash flow, or how much money your business will have in the future when accounting for upcoming bills and payments.

Managing cash flow effectively and keeping track of costs and profits gives business owners vital information on how best to manage the business moving forward.

How to calculate cash flow

Calculating cash flow can be tricky if you’re not sure where to start. A simple formula will give you the basics:


A positive cash flow means the company has more incoming cash than outgoing, in other words, it’s making a profit. A negative number means the company has more outgoing cash than incoming, so is running at a loss.

Negative cash flow isn’t always a bad thing, there are often periods where operating costs or expansions take a toll on the working capital of a business. This is okay so long as it’s temporary and expected.

If a business doesn’t monitor cash flow and unexpectedly finds itself with a negative flow, that could be a sign that the business isn’t operating as smoothly as it could be. Meanwhile, a healthy cash flow means more money for the business.

Remember even profitable businesses often encounter cash flow problems because of expenses due before upcoming profits can reach their bank account.

Why is managing cash flow necessary for small businesses?

Small businesses have limited resources and budgets, so cash flow is especially important. A good cash flow system helps business owners keep track of income, pay bills and suppliers on time, and make sure the business has enough money to cover expenses.

Cash flow management also allows small businesses to better prepare for unexpected costs or emergencies. It can help them plan ahead to make sure they have enough money saved up to pay salaries, taxes, and other bills without overextending.

By tracking cash flow, business owners can identify any potential problems quickly and make necessary adjustments before it’s too late. It also gives small businesses more information, helping them to grow and expand without worrying about having enough cash to run smoothly.

Tips for good cash flow management

Good flow management is essential for small businesses to remain healthy and successful. Having a cash flow problem can spell doom for a business owner, but effective cash flow management will help small business owners get on top of problems well in advance.

Here are our tips on managing your cash flow to make sure your business runs smoothly.

Borrow money before you need it

It doesn’t matter how much revenue a business makes if it doesn’t receive that money before its bills are due. Use your forecast to see upcoming costs and track outstanding invoices. When you see costs coming that you can’t afford, don’t wait until the last minute. Waiting puts undue stress on your cash reserves and makes it harder to meet requirements in a timely manner.

Borrowing money can smooth out bumps in the business’s finances, keeping cash flow healthy until you have money coming in again.

OnDeck business loans can provide a small business with up to $250,000 funded in as quick as one business day.

Create a cash flow forecast

Using data from a profit and loss statement, create a cash flow forecast to predict how much money your business will be making and spending in the future. Use this to plan upcoming costs and calculate extra cash the business can save to cover unexpected expenses.

Stay on top of inventory management

The biggest hit for most businesses’ profit margins is paying for inventory. Stocking too much inventory can tie up working capital and create cash flow problems, while not stocking up enough inventory makes it hard to sell the product and missing out on income. Track what goes out, what comes in, and how you’re pricing products or services to make sure your business isn’t overspending on merchandise.

Don’t forget to factor in shipping costs as well. Make sure you’re only ordering as much as is needed and only from reliable suppliers.

Keep track of expenses

Stay on top of tracking all the business’s expenses, especially ones related to taxes. Knowing how much money is going out every month will make it easier to budget for other costs and ensure you have enough working capital to keep the business running smoothly.

Time your income streams

Managing cash flow in a small business requires careful timing of income and expenses. Make sure that any pay dates given to your customers are before the due date for your expenses, so you can be sure that the money is there to cover them. This will help your company’s health by keeping your cash reserves ready and preventing stress on your finances.

Monitor your overhead

You can free up cash by reducing business expenses. Some examples could be to limit the amount of overtime staff can work, analyse operational processes for inefficiencies, and move to environmentally friendly equipment to cut down on power and water bills.

Take action

When you realise there is a problem with your cash flow budget, research why and make the changes needed to address it. Ignoring a small problem with your income stream now can only cause bigger issues down the line.

Using accounting software and getting professional advice from a financial advisor can help clear the numbers up, and let you focus on running the business. If you need cash to solve an immediate cash flow issue, consider a business loan to get you through.

Read our eligibility criteria and get started with a business loan today.


Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at May 2023. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

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