How to Effectively Manage Your Cash Flow

Are you using a cash flow business plan? If not, there are many reasons you should do a cash flow plan. The plan you make can mean the difference between the business’s success and failure.

manage cash flow

Assess and Forecast Your Cash Flow

You can run a current cash flow statement to learn what your business’s current financial health is and how much cash you have. In fact, this is the first thing that you’ll want to do to manage and plan your cash flow because it’s a starting point.

Now, you’ll also want to run cash flow forecasts for:

  •         One-month
  •         Three-months
  •         Six-months
  •         12-months

Forecasts may be inaccurate if they are longer in the future, but they will help you plan for any issues in the long run.

Assemble Data from Various Companies

If you’re running multiple business segments, assembling data for each company will make sense. For example, let’s assume Business 1 has a ground store and an ecommerce presence, too.

You’ll want to assemble data for the following:


You’ll have a lot of greater insight into what segments of the business are profitable and can continue operation without any additional financing. However, if the ground store is struggling and the ecommerce segment is doing well, it can help cover the shortfalls of the ground store.

A lot of information is provided in a cash flow plan, and if you can break it down further, it will make planning much easier.

Simulating Various What-if Scenarios

What-if scenarios are an important part of your overall plan because they’ll help you overcome obstacles that can happen along the way. For example, let’s assume that you plan on releasing a new product.

  •         What happens if the product demand explodes, and you have more orders than you can handle?
  •         What happens if the product goes bust, leaving you with massive research and development costs that you cannot repay?

If you create a monthly cash flow plan, always make multiple plans to have a better understanding of the next steps you would take in the best- or worst-case scenarios.

Focus on Faster Account Receivables

One of the key issues that we recognize in business with great sales but poor cash flow is that they have money waiting in account receivables that are late being paid. Customers will often wait until the invoice is due to make a payment.

While this may benefit your customer, it will lead to cash flow problems for you.

What can you do?

  •         Send out invoice reminders to try and push faster payments
  •         Offer multiple payment options to the customer
  •         Reduce the invoice terms to a faster payment time
  •         Apply interest for late payments, but this will need to be mentioned in the sales contract

Extending credit to customers may seem like a smart choice for your business, and it may be when you have strong cash flow, but it isn’t a good option if you have poor cash flow.

Negotiate Longer Terms with Your Vendors

While you may want to receive payments earlier, you will also want to extend your own payments as much as possible. If you have a very good relationship with vendors, you can often negotiate a longer term with the vendor.

For example, you will find that after six or twelve months of making invoice payments on time, you may be able to ask the vendor for a longer term.

Why is this beneficial?

  •    Let’s assume that you have $100,000 that will be paid to you in 60 days
  •    You have $10,000 in current cash
  •    You can extend the $11,000 vendor payment to 75 days

In this scenario, if you made a payment to the vendor before being paid, you will end up with negative cash flow, causing you significant problems when running your business. However, an extension with the vendor allows you enough time to receive payment and pay the vendor.

Negotiating longer terms with vendors is something businesses worldwide do.


Once you have a written cash flow plan, it will make it easier to begin budgeting with your business. Plans allow you to take action and even consider what-if scenarios if your plan isn’t going as forecasted and cash flow is higher or lower than expected.


South Florida Caribbean News

The Team provides news and information for the Caribbean-American community in South Florida and beyond.

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