Cash flow

positive:
A complete
guide
Introduction
Your cash flow is one of the best indicators of the short-term
and long-term success of your small business.

While you can’t ignore profitability, it’s just as important to keep

track of the money flowing in and out of your company.

Monitoring your cash flow allows your business to be flexible,

lets you improve internal operations, and attract more investors
to your company.

In this guide, we’ll walk you through all the basics of cash flow,
including its importance and attributes, what it means to be
cash flow positive, and how you can successfully manage and
improve cash flow for your small business.
What’s inside
CHAPTER 1

Cash flow basics 04

Understand how cash flows and in and out of your business

CHAPTER 2

Cash flow forecast 10

Plan for the months ahead and make important,
strategic decisions

CHAPTER 3
18
Cash flow statement
Keeping an eye on your operating, investing and
financing activities

CHAPTER 4
29
Cash flow management
Ensure your business is healthy and profitable

Wrapping up 33

Glossary: Cash flow forecasting 34

CHAPTER 1

Cash flow basics

Maintaining a positive cash flow is essential
for any successful business.

But even a profitable business can suffer from a negative cash

flow. So, what does it really mean to be cash flow positive?

In this chapter, we’ll help you understand what cash flow

is, what it means to be cash flow positive and why it’s
so important for your small business.

We’ll also show you the big difference

between cash flow and profitability.
CHAPTER 1: CASH FLOW BASICS

What is cash flow?

Cash flow is the total amount of cash that flows in and out of
a business during a specific period of time.

For example, when a company makes a sale and receives money in

cash, it experiences cash inflow, and when it pays the month-end rent
of the company building, it experiences cash outflow.

A business is cash flow positive when its cash inflow is greater than
its cash outflow.

A business is cash flow negative when its cash outflow is greater than
its cash inflow.

It’s important for your small business to maintain a positive cash flow
to survive. You need to have money in the bank to pay salaries and
wages, cover operating costs and settle previous debts.

Let’s take a look at the importance of cash flow in detail:

Why cash flow is important for

your business
1. Cash is king

There’s a reason why this expression is so famous. It basically

means that having cash puts a business in a more stable position
with better buying power.

Building up capital allows you to settle any debts, bank payments

and other monetary obligations. Having cash at hand is generally
associated with a company’s ability to generate even more cash.

2. Better planning

A positive cash flow allows a business owner to sit in the driver’s

seat and make important decisions for a company’s future.

With a positive cash flow, you’ll be better able to identify where

to stop investing and where to tie up your resources.

This knowledge can be priceless for small businesses that

are trying to be resourceful with both their time and money.

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CHAPTER 1: CASH FLOW BASICS

3. Business growth

Your cash flow will provide a narrative behind the historic trends
ofyour business, including how it made and lost money in the past.
Small business owners can use this insight to make better
decisionsfor their company’s future growth.

A positive cash flow also lets you invest more in the growth
of your business.

For example, you can buy office space, improve infrastructure

and technology, buy additional machinery and invest in
employee training.

4. Debt repayment

Companies often borrow money from banks and other third-parties

for investing in offices or retail space, equipment and other expenses.

When a business is under debt, it’s usually required to make monthly

loan repayments to each party.

Since interest is added to a loan, you have to repay a larger amount

than the one you received. This additional interest amount will be
considered a cash outflow for each month.

This basically restricts a company’s free cash flow, which is money

you can invest in the growth of your business.

Here’s why this is even more crucial for small businesses:

Stronger cash flow makes your business more appealing to lenders.

They also help you maintain a high credit score, which is an essential
requirement for companies to be eligible to receive a bank loan.

5. Flexibility

A positive cash flow gives your small business the much-needed

edge and flexibility for crucial decision-making.

If a company’s cash flows are positive, it will be more confident in

making important purchases for the improvement of the business.

You can even choose to pay out cash in the form of dividends
to shareholders or owners if your business is public. This helps to
strengthen the relationship between owners and shareholders,
whichis important due to the leverage and influence shareholder’s
have over a public company.

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CHAPTER 1: CASH FLOW BASICS

The difference between cash flow

and profitability
A lot of people assume that if a business is profitable, it must have
a positive cash flow. That’s not true.

While it’s easy to confuse cash flow with profitability,

there’s a big difference between the two concepts.

As stated earlier, cash flow is the amount of cash that moves in and
out of a business at any given time. It’s the money you need to meet
current and short-term obligations.

A profitable business with a negative cash flow risks becoming

bankrupt.

If your business is selling a product at a profit but it goes through a

long sales chain (i.e. you don’t get paid on time), you might end up
in hot water by not having enough cash to pay suppliers and cover
operating costs.

So, what is profitability?

Profit, or net income, is what remains after all expenses are deducted
from a company’s total revenue. High profitability doesn’t always
mean you have cash in hand, or the payment needed for goods
and services in cash rather than by cheque or credit.

For example, you can still have a positive cash flow if your business
is making no profit, or a shareholder invests money from their own
pocket into the business.

This means the cash isn’t coming from sales and income,
but from shareholder equity instead.

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CHAPTER 1: CASH FLOW BASICS

Expert insights
Insights author: Erin Wessels is Senior Accountant at SAIL Business
Solutions Ltd, providing affordable, user-friendly accounting and HR
services to companies of all sizes.

Why is it important for small businesses

to keep on top of cash flow?

Most of the small businesses we see failing do so not because

they don’t make a profit, but because they fail because they
don’t effectively monitor their cash flow.

They spend money on lovely offices, marketing and employees

upfront and then struggle to get money from their customers.
Or worse, they forget to keep enough back to pay the taxman.
As a result, their cash runs out and they can’t make the rent
or pay their employees.

What makes things worse is small businesses tend to see

accounting as a chore. They get financial statements once a year
and in between, they rely on the balance in their bank account (or
overdraft) with no cash projections.

Luckily modern accounting systems give small businesses the

opportunity to capture their sales and expenses on their mobiles,
do automatic recons and then provide an accurate daily snapshot
of the state of their business.

We often tell clients to think of their business as if it were their

household finances. When customers pay you is the same as
receiving your monthly income.

You can’t spend what you don’t have, even if you do have a credit
card. A business works in the same way. If you don’t watch your cash,
then you risk losing all the hard work you have already invested
because you can’t afford to pay the bills on time.

8
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CHAPTER 2

Cash flow forecast

Cash flow forecasts are used to provide insight into the
future of a business.

Knowing the expected amount of cash flowing in and

out of your company can help you make important decisions
at the beginning of a given financial year, and plan for the
months ahead.

In this chapter, you’ll learn what a cash flow forecast is, and why
it’s important for small businesses.

We will also show you an example of what a typical cash flow

forecast looks like, along with an editable template to help you
make your own.
CHAPTER 2: CASH FLOW FORECAST

What is a cash flow forecast?

A cash flow forecast is a document or spreadsheet that helps
you estimate the amount of money that’s expected to flow into
and out of your business.

Typically, a cash flow forecast estimates the cash flow over the next
12 months, but you can also make one for shorter periods of time.

Note: A cash flow forecast is not the same as a profit forecast (as
discussed in the previous chapter).

Why your small business needs

a cash flow forecast
There are tons of benefits of forecasting cash flow for your business.
It helps you set goals and make better decisions for the future
of your company.

Here are seven reasons why a cash flow forecast is important

for your small business:

1. It enables informed decision making

Cash flow forecasts help businesses plan their future growth.

Knowing the expected inflow and outflow of cash in the coming

months will help you make smart decisions. These decisions
include where and when to invest in areas of your business,
or if you need to tie up your resources.

2. It helps you predict cash surplus and shortages

A cash flow forecast helps you plan for financial ups and downs
in the near future.

For example, if you foresee that your business won’t have enough
cash at hand in the next quarter, you may want to tackle this by
cutting down on your operating costs to help bridge the gap.

Similarly, if you foresee that you’re going to have a lot of cash at

hand in the next quarter, you may want to reinvest in the business
by buying new machinery or renovating the building to improve
employee productivity.

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CHAPTER 2: CASH FLOW FORECAST

3. It lets you consider hypothetical scenarios

One key benefit of having a cash flow forecast is that it allows you
to see how making certain business decisions can directly impact
your overall cash flow and income.

For example, if you increase your expenses by 5%, you will be able to
estimate what it would mean for the profitability of your business.

Let’s say you run a small content marketing agency and are
looking to expand. Your expenses may grow by 5% due to the
need to hire new talent, rent a larger office space and spend more
on ad campaigns.

By mapping out a scenario in which you increase your expenses by

5%, you’ll be able to clearly see if you will have enough cash flow to
cover this increase. If not, you may need to plan for borrowing money
or increasing product prices to cover the gap.

Taking it a step further, your revenue will most likely increase due to
the efforts of your new hires. You can map out a scenario wherein
your revenue increases, leading to more operational demands, the
need to hire more staff, and so on.

Your short-term expenses may grow by 5%, but your revenue will
result in a long-term 10% increase due to your calculated spending
efforts. This may lead to another 5% hike in expenses, and so on.

Use scenarios like this to see how your cash flow will be impacted by
future expenses and revenues moving forward.

4. It helps you plan for loans and lines of credit

A cash flow forecast can also be used to secure government-backed

loans and lines of credit.

The forecast will not only clearly show your need for the loan,
but it will also show you when you’ll have enough cash to pay
back your debt.

5. It helps you make timely payments

It’s common for businesses to have a line of credit with their suppliers.
But the longer you take to pay them, the more your reputation will
suffer.

Forecasting can help you estimate when you’ll have enough cash to
make your due payments. It will also allow you to pay them on time,
maintaining strong relationships with suppliers.

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CHAPTER 2: CASH FLOW FORECAST

6. It provides information for banks and shareholders

25% of businesses are turned down for funding because of poor cash
flow, and 18% are turned down due to a poor credit score.

Banks, shareholders and future investors are all interested in

a business’ cash flow forecast. It shows them whether a company
is worth giving a loan to and/or worth investing in.

7. It provides historical context

Every business has its own unique style of working. The only way to
improve is to learn from the mistakes you’ve made in the past.

Keeping track of cash flow forecasts can help a business understand

how well they’ve managed cash in the past, and how accurate their
previous projections were.

Of course, this doesn’t mean your next projection will be 100%

accurate. But it does put you in a better position as you have a
reference cash flow to look at.

What to include in a cash flow forecast

A cash flow forecast is divided into two main categories: cash inflows
and cash outflows. Here’s an example of what you can typically find
in a cash flow forecast:

Cash inflows Cash outflows

• Accounts receivables • Accounts payable

• Expected earnings • Employee wages

from sales
• Operating expenses
• Investments
• Loan payments
• Sales of company assets

• Loan advances

Note: It’s natural that a small business will have fewer categories
than a larger corporation.

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CHAPTER 2: CASH FLOW FORECAST

Click here to download this free cash flow forecast template

and use it for your own business.

Let’s take a detailed look at three important elements that

should be included in every cash flow forecast:

1. Expected Sales

A cash flow forecast typically requires businesses to estimate their

projected sales over the course of a year.

You can look at last year’s sales data to forecast future sales while
factoring in seasonality for the coming year. You’ll find last year’s
sales revenue at the top of the income statement. This is one of
the three main financial statements your business should collate.
We’ll talk about these in more detail in the next chapter.

Remember, expected sales should:

• Be realistic
• Be aligned with the current state of the market
• Be aligned with company plans
• Consider probable resistance from competition

Keeping the above factors in mind will help you improve the quality
and accuracy of your cash flow forecasts.

Note: New small business owners can also use data from suppliers,
industry experts and even competitors to make forecasts.

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CHAPTER 2: CASH FLOW FORECAST

2. Projected costs

There are two main types of costs that a business incurs:

variable and fixed.

Variable costs are business costs that vary with the level of
output produced, such as the cost of raw materials.

Fixed costs are business costs that remain constant whatever

the output produced, such as rent.

Calculating expected sales can help you determine the amount of

raw materials you’ll need to buy in the future to meet your orders.
Add all your expected costs up and use them in your cash flow
forecast for a more accurate estimate.

3. Projected payment timings

Another important part of your cash flow forecast is adding the

estimated timelines of payments to be received.

Again, it’s important that you make sure the timelines are realistic.
For example, factoring in two weeks for late payments is a good idea.

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CHAPTER 2: CASH FLOW FORECAST

Expert insights
Insights author: Adele Shaw is Director of Octopus Accounting Ltd,
making accounting simple for companies in the logistics industry.

What systems would you recommend small businesses put in place

to effectively track their cash flow?

Most people have a rough idea of how much is coming in and

going out of their business. Cash is king, and knowing your cash flow
is the difference between being successful and not. Being on top
of your Aged Receivables or ‘people that owe you’ has to be your
number one priority.

I always recommend clients invest in online accounting software such

as Xero or Freeagent. These systems provide automatic chasing of
invoices that remain outstanding, so you don’t have to rely on dates
in the diary to remind you of who to chase and when.

These systems also allow you to visualise cash flow through

the business, uncovering areas to improve the financial health
of your business.

Finally, make sure you have a separate bank account for

business transactions. This way, you have a clear picture of
what is happening in the business.

How can small business owners fuel growth by keeping on top of

their cash flow?

Making a profit and having a positive cash flow are very different
things – whilst a business can be profitable on paper, it may not have
the cash flow to enable it to continue to trade.

By keeping on top of your outstanding invoices and ensuring their

timely payment, while also taking advantage of the payment terms
that your suppliers offer to you, will help you plan for the future and
investment opportunities.

Planing 30 to 90 days ahead will allow you to plan for growth during
periods where your cash flow increases. This will prevent you from
setting up new promotions when cash flow is low and you need the
funds to cover payables due in the near future.

Ensuring that cash flow is positive will allow you to reinvest in your
business and increase your profits, creating a snowball effect.

16
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CHAPTER 3

Cash flow statement

With your cash flow forecast laid out, it’s time to get to grips
with the present.

Your cash flow statement is what provides an objective view

on the health of your business, and whether or not you’re
truly profitable.

Here, you’ll learn how to report on your cash flow, plan ahead
to avoid any surprises and build your cash reserves.
C H A P T E R 3 : C A S H F L O W S TAT E M E N T

There are three important financial statements that all businesses

must regularly keep an eye on:

• Income statement
• Balance sheet
• Cash flow statement

We touched on these above, but let’s quickly talk about the first two
before focusing our attention on the cash flow statement.

The income statement:

This statement is also referred to as the Profit & Loss or P&L

statement. It gives you a high-level overview of your company’s
financial health. The income statement allows you to quickly
evaluate your revenue, expenses, Cost of Goods sold and net income.

In short, you can see how much you’re earning and spending and
what’s left over as your true profit when all expenses are subtracted
from earnings.

The balance sheet:

The balance sheet shows you a clear picture of liquidity. You’ll get an
overview of your assets and liabilities, or what you own and owe. This
helps you better understand your company’s efficiency and what can
be converted into cash need be.

A cash flow statement, on the other hand, has the power to show
whether a company has been historically profitable, and can give
insights on where it can improve in the future.

In this chapter, we’ll talk about what a cash flow statement is,
why it’s important and how you can create one for your business.

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

What is a cash flow statement?

A cash flow statement, also called a statement of cash flows, is a
financial document that shows how changes in your balance sheet
can affect cash inflows and outflows.

It is usually considered less important than the other two financial

statements, but can be used to determine trends in business
performance that are not readily apparent elsewhere.

A cash flow statement is also important when there’s a difference

between the amount of profit reported and the amount of net cash
flow generated by operations.

What is included in a cash flow statement?

The information that goes into a cash flow statement is divided into
three main categories: operating, investing and financing activities.

Let’s take a look at each of them in detail:

1. Operating activities

All activities involved in the day-to-day operations of a business

belong under the operating category.

In other words, these are the revenue-generating activities

of a business.

This includes cash received or disbursed from sales,

commissions, lawsuits, royalties, fines and invoices.

2. Investing activities

All activities involved in purchasing or selling the long-term assets

of a business belong under the investing category.

These include buying or selling fixed assets and the purchase

or sale of securities issued by other entities.

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

3. Financing activities

All activities that alter the equity or borrowings of a business belong

under the financing category.

These include the sale of company shares, the repurchase of shares,

and dividend payments.

Here’s an example of what a typical cash flow statement

looks like:

XYZ inc.
Statement of Cash Flows
For the year ecded December 31, 2015

Operations

Operations
Net income £25
Depreciation 10
Increase in Accounts Receivable (4)
Decrease in Inventory 8
Increase in Accounts Payable 12
Decrease in other short term Liabilities (6)
Cash from Operations 45

Investing

Sales of Property 22
Purchase of Equipment (33)
Cash fom Investing (11)

Financing

Issue debt 100

Dividends paid (10)
Cash from Financing 90
Change in cash 124
Beginning cash at December 31, 2014 20
Ending cash at December 31, 2015 £144

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

Why your business needs a cash flow statement

1. It helps you track cash

Every business needs to spend money; whether you’re

buying machinery, repaying loans or settling supplier bills.

For small business owners, it’s important to keep track of

these expenditures for making future improvements in the
business processes.

A cash flow statement lets you do exactly that: track your cash.

Note: Your expenses are also present in the income statement,

but a cash flow statement lets you analyze them in detail.

2. It builds your excess cash reserves

In one way or another, the ultimate goal for most businesses

is to maximise profit.

A proven way to improve your profitability is to increase the

cash available.

A cash flow statement can help you analyze the areas where you
need to improve - such as cutting down on expenses - to make
sure you have a positive cash flow.

Shortening the time it takes to collect cash receivables from

customers is another way of doing this. By doing this, you’ll be
able to manage your product inventory more efficiently.

3. It lets you plan ahead

A cash flow statement helps you control and manage cash,

which assists in short-term and long-term planning.

Short-term planning: All businesses should, ideally, keep sufficient

liquid funds (i.e. cash) that can be used to pay off their short-term
obligations, such as wages.

A quick look at the past cash inflows and outflows can help you
locate the areas you need to improve on and free at least some
cash to meet your day-to-day expenses.

Long-term planning: A cash flow statement reveals major

changes required to improve a company’s financial positioning.

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

This information can be used by the management in prioritising

the important long-term activities of the business.

4. It reveals historical results

A cash flow statement can be used to tell if past predictions

and forecasts were accurate.

A smart business owner will accept and learn from the mistakes
made in the past, and try to create realistic goals, forecasts and
deadlines in the future.

5. It helps inform your financing decisions

Knowing past and current trends in cash flow will help you calculate
whether you can afford to finance the growth of your company.

A few ways to do this include using the excess cash provided from
profits, borrowing money from the bank or acquiring outside capital.

Pro-tip: The key lies in understanding the basic direction

where your cash is going and continuously finding avenues
to raise more cash.

6. It helps you analyze working capital

All business owners and investors understand the importance of

a company’s working capital, which is essentially the net capital
of a business used in its day-to-day operations.

The working capital is calculated after all current liabilities

are subtracted from current assets, and is included under the
operatingcategory in the cash flow statement.

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

How to create a cash flow statement

There are two commonly used methods to prepare cash
flow statements: direct and indirect.

In both methods, investing and financing categories in the

cash flow statement remain the same. The only difference lies
in the operating section.

Let’s discuss these in detail:

The direct method

This method of preparing a cash flow statement shows the major
classes of gross cash receipts and gross cash payments,
which includes all individual cash transactions (paid or received).

Here’s a sample cash flow statement prepared through

the direct method:

Operating Activities

Operations
Cash received from customers £800
Cash paid to suppliers (150)
Employee compensation (200)
Other operating expeses paid (250)
Net cash from operating activities 200

Investment Activities

Sale of land 200

Purchase of equipment (300)
Net cash from investing activities (100)

Financing Activities

Common share dividends (200)

Payment on long-term debt (300)
Net cash from financing activities (500)

Beginning Cash Balance X

Ending Cash Balance Y

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

The indirect method

This method of preparing a cash flow statement starts with the
net income, and adjusts the company’s profit or loss with the
effects of the transactions.

Accounting line items, such as net income and depreciation,

are used to arrive at cash flow.

Here’s a sample cash flow statement prepared through

the indirect method:

Operating Activities

Operations
Net Income £50,000
Add: Depreciations expense £10,000
Decrease in AR £2,000
Increase in inventory £3,000
Decrease in prepaid expense £4,000
Increase in accounts payable £5,000
Net Cash provided by operating activities £XXX

Investment Activities

Sale of land 200

Purchase of equipment (300)
Net cash from investing activities (100)

Financing Activities

Common share dividends (200)

Payment on long-term debt (300)
Net cash from financing activities (500)

Beginning Cash Balance X

Ending Cash Balance Y

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

Building a positive cash flow requires manually going through certain

steps. If you miss out on even one of these steps, you can end up with
inaccurate and flawed results and analyses.

Luckily, we at Tide have created a free and easy-to-use cash

flow statement template to save you the hassle of making one
from scratch:

Click here to edit this free cash flow statement template

and use it for your small business.

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C H A P T E R 3 : C A S H F L O W S TAT E M E N T

How to review cash flow statements

Now that you understand what a cash flow statement is and
how to create one, let’s cover how to review your statements
in the most efficient way.

First, track your historic cash inflows and outflows to see exactly
where your business incurred expenses or collected cash.

The second step is to use this historic data to make future

projections. In this stage, you should set realistic goals of how
much cash you desire at the end of next month, quarter or year.

Setting a cash goal will allow you to control your operating expenses
and push you to achieve the required number of sales.

No one projection or goal is right for all businesses. You need to

set your own goals and make sure you stick to the plan.

27
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CHAPTER 4

Cash flow management

By understanding how much cash flows in and out of
your business, and figuring out how to create forecasts
and statements, you’re taking important steps towards
consistently running a profitable business.

But it’s just as important to know how you can manage

your cash flow efficiently to make sure your business cash
flow is positive.

In this chapter, we’ll discuss what cash flow management

is and show you several expert tips to help you manage
your cash flow efficiently.
CHAPTER 4: CASH FLOW MANAGEMENT

What is a cash flow forecast?

Cash flow management is the process used by a business to track
its cash inflows and outflows. Managing cash flow allows you to be
fully prepared when facing tough decisions.

For example, it can help you identify how much money you’ll require
to cover debts and salaries for the next quarter.

Practising and getting good at cash flow management will eventually

do wonders for your business. Let’s dive into the tips to help you do it.

9 tips to manage your company cash flow

1. Determine the break-even point

A break-even point represents the amount of sales required to

cover the total cost of a business. It is one of the most important
calculations used to evaluate a company’s financial health.

The break-even point takes into account the number of sales

required to pay its expenses, along with the revenue to be
collected from those sales versus due bills.

This information can be used by small business owners to gear up

for the future and make the necessary sales in order to be successful.

2. Cut costs

One of the main purposes of a cash flow statement is to help

businesses track their cash. This information can be used by
companies to analyze their past expenses and make better plans
for the next term.

This is where you, as a small business owner, need to make tough

calls. For example, do you want to continue spending on services
you’re not using or insurance you no longer need?

Another example is leasing equipment instead of purchasing it. This

avoids excessive expenditure and doesn’t tie up your cash in an asset.

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CHAPTER 4: CASH FLOW MANAGEMENT

3. Invoice efficiently

Another way to better manage cash flow is to improve the efficiency

of your invoices. You can do this by sending invoices as soon as the
work has been completed or the products have been delivered.

It’s useful if you have a contact in the other company, preferably

someone who has the authority to release payments quickly.

Make sure that your invoices are easy to understand and

clearly mention details such as the due date, due amount,
payment methods and address.

Pro-tip: Want to learn more about raising invoices and getting

paid on time? Read our full guide to invoices on our blog.

4. Maintain cash reserves

It’s great practice to maintain some kind of a cash fund or

reserves for unexpected emergencies.

You can do this by setting aside a certain percentage at the

start of every business term. Although this may temporarily
decrease the total cash available for operations, having a buffer
can prevent your business from seeking out external help.

5. Develop contingency plans

Once you’ve completed your cash flow forecast, it’s a good idea
to add in a contingency category that’s equal to at least 20-30%
of your total expenses.

This amount will help you take care of any small operating expenses
of your business and help improve the quality of your operations.

6. Encourage clients or customers to pay faster

Receiving cash faster is one of the best ways to maintain a positive

cash flow. This can be done in various ways, but the most proven
technique is to offer discounts on early payments.

For example, if a customer pays the required amount in the

next 10 days, they can get a 2% off on the total payment.

This is a win-win situation for both parties; businesses receive

payments faster and customers enjoy a discount.

31
CHAPTER 4: CASH FLOW MANAGEMENT

7. Extend or delay payables

When you’re trying to shorten the time it takes to receive cash, it’s
also a good idea to delay any cash payments that you need to make.
This gives you more room to choose what to do with your cash.

Of course, this might not be a good idea if you’re getting an

incentive to pay early (similar to the discounts we mentioned
in the previous point).

Note: You may choose to delay payments every now and then, but
making this a habit can land you a bad reputation in the industry.

8. Secure a line of credit

It’s common for small businesses to seek the help of a bank

to finance its operations.

But 45% of business owners don’t even know that they have
a business credit score, and 82% of those that do don’t know
how to interpret their score.

Banks use this as an opportunity to give weak businesses

higher interest rates.

The interest has to be repaid to the bank on a monthly or

quarterly basis, depending on the terms, which is a fixed cash
outflow for a business.

To avoid this situation, business owners should secure a line of credit

in advance with lower interest rates and a reduced cash outflow.

9. Use tools to stay on top of cash flow

There are a number of software systems available that you can

use to save time, improve productivity and increase efficiency.

Tide offers an all-in-one banking solution to help you improve cash

flow management, especially with our free, editable and tailor-made
cash flow statement and cash flow forecast templates. Missed these
earlier? Don’t worry, we’ve included them in the glossary below.

With these tips, you’ll be on the way to establishing a positive

cash flow in no time.

32
Wrapping up
For small businesses, understanding how to track cash flow
and managing it efficiently to make sure they’re cash flow positive
is a big deal.

Small businesses are already short on resources, and having

sufficient cash at hand is crucial to cover short-term expenses,
make flexible decisions, be eligible for loans, and survive in
a competitive environment.

This guide will help you familiarise yourself with cash flow
basics and all you need to know about managing cash flow,
forecasting it, and creating cash flow statements.

Not only will you be able to understand where you’re the strongest
or weakest, it will also give your business direction to move forward.

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GLOSSARY CASH FLOW FORECASTING

Glossary: Cash flow forecasting

Learning new terms and language all at once can quickly
become overwhelming.

This is why we’ve created a chapter-by-chapter cash flow

glossary with complete definitions to help you get started.

Chapter 1: How to Open a Business Account

Cash Flow: The total amount of cash being transferred into

and out of a business.

Cash Inflow: The cash going into a business, e.g. money from
sales, investments, or financing.

Cash Outflow: The cash leaving a business, e.g. expenses

on debt repayment or salaries.

Credit Score: A numerical expression based on a level analysis

of a person’s credit files to represent the creditworthiness
of an individual.

Debt: A sum of money that is owed or due.

Divest: To rid oneself of a business interest or investment.

Expense: The cost incurred in or required for something.

Free Cash Flow: The cash leftover after a business pays its
operating expenses and capital expenditure, and is available
to reinvest in a business.

Invest: Put money into financial schemes, shares, property, or

a commercial venture with the expectation of making a profit.

Investment Portfolio: A basket of assets that can hold stocks,

bonds, cash and more.

Loss: When expenses are greater than revenues.

Negative cash flow: A situation where cash outflows are greater

than cash inflows.

Positive cash flow: A situation where cash inflows are greater

than cash outflows.

Profit: The net income when total expenses are deducted

from total revenues.

Profitability: The degree to which a business earns a profit

or financial gain.
34
GLOSSARY CASH FLOW FORECASTING

Rent: A tenant’s regular payment to a landlord for the use

of property or land

Revenue: The total income generated from the sales of

an organisation’s goods or services.

Sale: The exchange of a commodity for money

Chapter 2: Cash flow forecast

Accounts Payable: The amount owed by a company to suppliers/

vendors for goods or services it received on credit.

Accounts Receivable: The amount owed to a company resulting

from the company providing goods or services to customers on credit.

External Stakeholders: These are the entities not within a business

itself, but who care about or are affected by its performance.
It includes consumers, regulators, investors, and suppliers.

Fixed Costs: Costs that remain constant regardless of the

output produced.

Forecast: A prediction or an estimate of a future event or trend.

Government-backed Loan: Subsidised loans by the government,

which protects lenders against defaults on payments, thus making it
a lot easier for lenders to offer potential borrowers lower interest rates.

Operating Costs: Costs involved in the day-to-day operations

of the business.

Sales Trend: Analyzing sales results to understand the trends

of the market over a specific period of time.

Shareholder: An owner of shares in a company.

Variable Costs: Costs that vary with the level of output produced.

Chapter 3: Cash flow statement

Balance Sheet: A statement of the assets, liabilities, and capital of a

business or other organisation at a particular point in time, detailing
the balance of income and expenditure over the preceding period.

Capital: Wealth in the form of money or other assets owned by a

person or organisation or available for a purpose such as starting
a company or investing

35
GLOSSARY CASH FLOW FORECASTING

Cash Flow Statement: A financial statement that provides

aggregate data regarding all cash inflows a company receives
from its ongoing operations and external investment sources,
as well as all cash outflows that pay for business activities and
investments during a given period.

Current Assets: Cash and other assets that are expected to be

converted to cash within a year.

Current Liabilities: Amounts due to be paid to creditors within

twelve months.

Depreciation: A decrease in the value of an asset over time,

due in particular to wear and tear.

Financing Activities: The inflow and outflow of cash resulting

from debt issuance and financing, the issuance of any new stock,
dividend payments, and any repurchase of existing stock.

Income Statement: One of the three important financial

statements used for reporting a company’s financial performance
over a specific accounting period.

Investing activities: These are the second main category of net

cash activities listed on the statement of cash flows and consist
of buying and selling long-term assets and other investments.

Operating Activities: These are the functions of a business directly

related to providing its goods or services to the market.

Profit: A financial gain, especially the difference between the

amount earned and the amount spent in buying, operating,
or producing something.

Chapter 4: Cash flow management

Asset: An asset is a resource with economic value that an individual,

corporation, or country owns or controls with the expectation that it
will provide a future benefit.

Cash Flow Management: The process used by a business in

tracking its cash inflows and outflows.

Contingency Funds: A reserve of money set aside to cover

possible unforeseen future expenses.

36
GLOSSARY CASH FLOW FORECASTING

Insurance: An arrangement by which a company or the

state undertakes to provide a guarantee of compensation
for specified loss, damage, illness, or death in return for payment
of a specified premium.

Interest Rate: The proportion of a loan that is charged as interest

to the borrower, typically expressed as an annual percentage of
the loan outstanding.

Lease: Written or implied contract by which an owner of the asset

grants a second party the right to its exclusive possession and use
for a specific period and under specified conditions, in return for a
specified periodic rental or lease payments.

37
GLOSSARY CASH FLOW FORECASTING

Cash flow templates

1. Cash Flow Forecast Template

2. Cash Flow Statement Template

38
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