This is the third part of running your business successfully. You can read the first part and the second part here.

We will be looking at managing cash flow in this part. Cash flow is an integral part of business, and it determines whether your business breathes well or is suffocating and just getting by.

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Manage Cash Flow as the Lifeline

Cash flow is reality, profit is theory. Profit does not guarantee survival of a business because a business can still fail if it runs out of cash. If inventory is left unsold or payments are delayed, it affects the cash flow and also the business.
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Cash is king and it is the lifeline that keeps operations going, inventory available, staff paid, and other payments made.

You need to track the three flows of cash in your business which are

• Inflow: Payments for goods sold or services rendered
• Outflow: Expenses, salaries, rent
• Timing: When money moves

Track Incoming and Outgoing Cash

Every business has three money movements:

• Inflow
• Outflow
• Cash delayed

You need to understand the three money movements in your business. You should have a solid list of every expense made, every revenue, and record time of each transaction.

Cash delayed can cause the same harm as cash that never arrives. That is why timing is equally important as much as the amount.

Map each movement. List every source of revenue. List every expense. Record when each transaction happens. Cash flow is about timing as much as amount. Money that arrives late can cause the same damage as money that never arrives.

Payment Cycles

There is always a disparity between when you receive payments for goods sold and when you must pay suppliers. This disparity often creates pressure because you are out of cash to pay suppliers, meaning you don’t have enough inventory to process. Having lesser inventory means you don’t have enough goods to sell, and it continues like that.

If customers pay after thirty days but you must restock weekly, pay wages, rents, electricity bills, your cash flow will take a hit even if sales look strong.
You need to work on the payment cycles for both customers and suppliers, so they align. The alignment will make your business cash flow breath.

Inventory

Starting out my recycling business, I faced this issue, and it wasn’t a great period. I over-stocked PET bottles to about 80 tons and was short of cash to process and even sell.

Excess inventory ties cash down. You should track turnover rates and work to improve it. Keep the stock levels at an appropriate rate enough to maintain operations and not suffocate cashflow. This is made easier with data.

Separate Personal and Business Spending

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Most business owners, especially sole proprietorship, mix business and personal accounts together. You should have a role in your business and pay yourself a salary. This would allow you to know the true cash position in your business.
When you treat your business account as an extension of your personal account, you will just be making money and seeing it all disappear without record.

Cash Buffer

This is hard for businesses just starting out but it is highly recommended as you grow. Unexpected expenses occur and the cash buffer protects you during this time.
January this year was the month my cash buffer came into use. The hydraulic pump used by my baling machine stopped working. It cost $1,500 to get a new one and that would have stalled the business for months if the reserve cash wasn’t available.

Equipment can fail, you might encounter delayed payment or price change. The cash buffer provides stability during this period.

Start with a small reserve and build it slowly.

Reconcile Accounts

Reconciliation gives a real-time view of the business. Reconcile accounts weekly even if you don’t have an accountant yet. The weekly reconciliation help to prevent surprises and allows quick correction

Avoid Unnecessary Fixed Costs

Most of my core staff in my recycling business are paid based on the work they do. Initially I started with a fixed salary, but I realized it is not sustainable. There are months where the work is slow and others where we have huge volume. There is the human factor of some working more than others. I had to switch to a flexible and fair payment structure.

Fixed costs drain cash. Rent, salaries, security levies and electricity bills continue even when sales are slow. Keep fixed costs low as possible and use flexible payments where possible.

Final Thoughts

Cash flow management guarantees business survival. When cash is tracked, controlled, fixed costs reduced, and reserves exist, the business stays functional under stress. A stable cash flow allows the owner to make decisions from a position of clarity, not panic.

I will talk about Leadership in the next part. Stay tuned

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