Small Business Cash Flow Analysis and Management

by | Accounting and Cash Management

Sorry. As hard as we tried – which mostly consisted of staring at the screen for ten minutes – we just couldn’t come up with a flashier title. Maybe we could have tacked on, “…made simple” or “…made fun,” but that wouldn’t have been completely honest.

The truth is, unless you’re, you know, a “numbers person,” cash flow analysis and cash flow management are pretty darn challenging. Well, the basics are simple. At least on paper. But putting meaningful practices into play day after day can be a struggle. Still, and this is the tough part, you absolutely have to get the numbers stuff right. If you don’t, your business won’t be around for very long.

We’ve made the point in this space before, that your strengths – the specific things you do well enough to start and run a business around (manufacturing, selling, engineering, delivering, etc.) – probably don’t provide you the time or inclination to devote a lot of attention to the support functions, like cash flow matters, that are backbone of your company.

You can and should get competent help to make sure your cash position is analyzed and managed the right way, but you still need to have enough of a comfort level with cash analysis and management concepts to allow you to ask the right questions and make decisions that are in the short and long-term best interests of your company.

So hang in there for another 923 words. We’ll explain the basics of cash flow analysis and cash flow management, and include a couple tips that might improve your cash position right away.

Cash Flow Analysis

As the name indicates, cash flow analysis entails taking a thorough look at your company’s current and near-term cash position. Think of it as a way of checking up on your company’s financial health.

Analysis is performed by assembling a cash flow statement, which is really just a list of the flows of cash into and out of your company over a particular period. But, it’s important to know that a cash flow statement focuses not only on the amount of cash coming in and out, but also on the timing of those changes in the company’s cash position.

This is where the analysis part comes in. This part of the process is important because the numbers can help you anticipate your company’s cash needs, and that’s critical in keeping the business up and running without interruption.

At its simplest level, the components of cash flow include:

  • Starting cash. This is your beginning balance. It’s the amount of cash on hand at the beginning of the period.
  • Cash inflow. This includes all cash received during the month, including cash sales, paid receivables, interest payments, and cash received from sales of other assets or stock.
  • Cash out. The total of payments sent out. Includes both fixed (rent, payroll, etc.) and variable expenses.
  • Ending balance. The amount of cash on hand at the end of the period.

Here is an example of how you measure cash flow by subtracting your monthly ending balance from your starting balance. Your cash flow statement will be more complicated and have more line items, but this illustrates how the process works.




Cash (starting)



Cash inflow

    Cash Sales




Total inflow


Cash out









Total cash out


Net cash flow


Ending balance


The company in this example paid out more during the month than it had coming in, by $3650. Cash on hand was still $9850, though, thanks to the balance at the month’s start.

Maybe the rough month was due to seasonal factors or similar circumstances. But the important thing is, analyzing cash flow gives the company the opportunity to prepare for – or manage – the shortfall. In this example, cash reserves were enough to keep operations humming along, and that was probably due to effective cash management practices put in place earlier.

Tip: Remember, even a small dip in sales or slight spike in expenses can make a significant dent in your company’s short-term finances. A well prepared cash flow statement can put you in a better position to deal with those situations.

Cash Flow Management

If cash flow analysis makes up the x’s and o’s game planning of keeping your company in good financial health, then cash flow management is the Friday night blocking and tackling. That is, what you actually do, in terms of making payments and collecting funds, in order to keep your company in a good financial position.

This breaks down into three parts: Collecting receivables, Managing payables, and Coping with cash shortfalls.

Collecting receivables

Invoice quickly. So obvious, but often overlooked. Make sure your customers receive an invoice within two days of product or service delivery.

Provide incentives. Offering a small percentage discount to customers who pay immediately or within a short time of delivery can speedup your receivables, build customer relations, and give you an advantage over your competitors.

Be careful with credit extensions. Remember, you don’t have to extend credit to anyone. That said, if it’s standard practice in your industry, you might not really have a choice. But run credit checks and ask for deposits whenever possible.

Managing payables

Negotiate up front. Getting a great price is important, but don’t ignore the advantages of setting up favorable payment terms. Maybe net-30 is standard, but if your business is important to the vendor, maybe net-45 or even net-60 can be worked out. But do this up front. You’ll never have more leverage than just before you agree to the sale.

Prioritize. You have to pay all your bills, but some bills have higher priorities than others. Make payroll, key supplier, and rent payments ontime. The same goes for payments to government authorities (licenses, permits, etc.) and tax collection agencies. Certain other payments might afford you a little running room in a crunch, but be sure you let your creditors know what’s going on (see “communicate,” below).

Coping with shortfalls

Communicate. If you politely inform your creditors that you’re facing a short-term cash crunch, they’d likely rather work with you on easier terms than lose you as a client entirely.

Arrange alternative financing. Invoice factoring or purchase order financing can significantly accelerate your accounts receivable and get your company on solid financial footing. Contact MP Star Financial for information.

Putting it Together

To be effective, cash flow analysis and cash flow management need to be part of a larger commitment to ensuring that your company remains financially healthy.

Good cash flow analysis means you will know when your cash needs will occur. Your cash flow management strategy lets you take appropriate actions that will help you get through the difficult financial periods experienced by all growing companies.


Let MP Star Financial explain how factoring can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.

Let's Talk

For more specifics about invoice factoring, visit MP Star Financial online or schedule time to talk with a representative. Don’t wait 30 to 45 days for payment. MP Star can get funds to your account faster. Call MP Star Financial today at (877) 292-1904, extension 150.