A Crash Course in Cash Flow Management

A Crash Course in Cash Flow Management
Solid cash flow management is key to keeping your business operating smoothly.
by Mary Hohn Jan 31, 2019 — 4 min read
A Crash Course in Cash Flow Management

When you’re a business owner, cash flow is your lifeblood. To keep your business operating smoothly, it’s essential to ensure you have more money coming into your business than going out.

And while effective cash flow management is fundamental to a business’ success, it’s not uncommon for business owners to struggle with cash flow problems. In fact, 82 percent of businesses fail due to cash problems, and in a recent study, we found that almost half of business owners stay up at night worrying about cash flow.

In other words, if you’re worried about cash flow, you’re not alone.

To help you stay on top of it, we’ve broken down the basics of cash flow management and put together tips so you can ensure financial health for your business.

What is cash flow management?

Cash flow management refers to the process of tracking money that comes in and out of your business. By tracking these funds, you can forecast how much money will be available to your business in the future, and how much you’ll need to pay in expenses.

To help you manage your cash flow, it’s critical to reference your cash flow statement, which is used to report the cash generated and spent during a specific accounting period.

Why cash flow is important

It’s important to pay close attention to cash flow each month to ensure you have sufficient cash on hand to pay operating expenses such as payroll and suppliers. If you don’t have access to cash, you can end up with unpaid bills and late salary payments for employees.

To avoid this, you need to carefully manage your cash flow each month to focus on creating a positive cash flow, meaning you have more money entering your company than leaving it each month.

A cash flow statement gives you insight into where money is coming from, when it’s coming in, and how it’s being spent, so you can analyze your company’s financial status and budget for the future.

4 common misconceptions of cash flow management

When it comes to cash flow management, there are a few common misconceptions that can be misleading for business owners, including:

What causes cash flow problems?

There are a number of issues and bad business decisions that can negatively affect cash flow and increase business risk. Some of the most common causes of cash flow problems are:

Staying in the clear—the secret to effective cash flow management

To avoid cash flow issues altogether, it’s best to use proactive cash flow management strategies and tools, such as:

By incorporating these preemptive measures, you can take charge of your finances and guarantee a healthy cash flow for your business.

Mary Hohn
Mary Hohn writes for Square, where she covers topics that affect business owners — from starting a business to growing a business — and the tools and technology that help them succeed.


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