Cash flow is the lifeblood that keeps your business going and growing. If you don’t pay attention to your cash flow, it can lead to serious problems like insolvency or having to lay off employees. It’s important that you understand how cash flow works so that you can manage it effectively. Below are some tips on how to manage cash flow in your small business:

1. Put a Budget Together

The first step in managing your cash flow is to create a budget. This should include all of the income you expect to receive and all of the expenses you will incur over the next 12 months.

The more realistic your budget is, the easier it will be to manage your finances. A good rule of thumb is that if there’s a line item on your budget, there should also be evidence from somewhere else (e.g., an invoice or receipt) showing that money has been spent or earned in this way.

To help with this process, consider creating a cash flow statement for each month by dividing up all of your incoming and outgoing funds into separate categories such as ‘Income’ and ‘Expense’ (or whatever makes sense for your business). You can then review these statements regularly so that any imbalances can be addressed before they become too large or cause problems further down the road.

2. Create a Cash Flow Statement

A cash flow statement is a financial statement that shows the inflow and outflow of cash for a certain time period, usually monthly or quarterly. It can be used to help determine if you’re profitable, how much money is coming in versus going out, where your business stands financially and whether or not you’re on track with your budget.

To create a cash flow statement:

  • List all incoming revenue sources first (e.g., sales receipts).
  • Then list all outgoing expenses (e.g., payroll costs).
  • Finally, subtract the two lists from one another to see how much money is left over at the end of each period.

3. Reduce Unnecessary Expenses

To manage cash flow more effectively, it’s important to look for ways to reduce your expenses as much as possible. Here are some options:

  • Cut costs by using a cell phone, not a landline.
  • Shop around for better rates on services you use regularly (such as insurance or Internet service). The money you save will add up over time and help keep your business afloat during difficult times.

4. Keep Your Debt Repayments in Check

In your business plan, you’ll have to make sure you keep track of all the money that flows in and out of your business. This includes everything from paying yourself a salary to covering product costs, advertising expenses and so on. It’s also important to pay off any debts that you may have acquired along the way. If there are any credit cards or loans outstanding on your balance sheet (or if you need some help with cash flow), now is the time to tackle them head-on—before they start taking up too much attention from other aspects of running your business.

5. Be Mindful of Your Payables

Many small business owners tend to overlook the importance of paying their bills on time, which can cause their cash flow problems. You should pay all bills as soon as they are due, and if you don’t have enough money in your account, ask for a payment plan from the vendor or service provider. This will allow them to work with your company and help you stay in good standing with them.

6. Factor Your Invoices

Factoring your invoices means that you sell your outstanding invoices to a factoring company. The factoring company will then pay you right away, usually within 24 hours of receiving the invoice and collecting funds from their customer. Typically, the fee charged by a factor is around 2% – 3% of the value of your outstanding invoices.

What Is Invoice Discounting?

Invoice discounting is very similar to factoring, except it’s not as formal or structured as factoring can be. In an invoice discounting agreement, you sell your outstanding invoices directly to a third-party lender (usually an investment bank) who will pay you immediately for those receivables at a predetermined rate and discount off of face value (similar to how the banks do with personal loans). This process is quick and simple – no paperwork is required!

7. Offer Flexible Payment Options and Discounts

Customers are more likely to pay on time if they can make monthly payments. Discounts are a good way to get customers to pay early, and you can offer discounts for early payment or for paying in full. If a customer pays by cash or cheque, offer them an even bigger discount!

The Xero HubSpot Integration allows you to easily create a discount code that will automatically be applied when a customer uses it. This makes it easy for your staff members at the front desk to keep track of all the different codes they’ve issued, which helps them avoid any mix-ups down the road.


Whether you run a small business or have aspirations of doing so, being aware of your cash flow is imperative. There are many factors that can affect the amount of money coming in and going out, but by following these tips—and keeping an eye on how your finances are doing overall—you will be able to manage your cash flow easily.

About the Author

Monica is a passionate writer and content creator. Her interests include outdoor activities, fitness, technology, entrepreneurship and everything in between. Say hi to Monica on Twitter @monical_lee.


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