10 Business Cash Flow Principles to live by

Understand the cash flow cycle from cash to inventory, paying suppliers, selling, and collecting payments. Shorten the cycle and optimize terms to keep cash positive for inventory and service businesses.

Identify your current cash position using the working capital statement. Track your cash flow cycle from cash and inventory to supplier payments and customer collections, updating weekly or monthly.

Compile a working capital statement to map current assets and liabilities, assess cash, debtors, and inventory, and determine net working capital and liquidity.

Focus your energy on cash flow levers you can control, such as invoicing, payment terms, follow-ups, early discounts, and inventory management aligned with market demand and supplier terms.

Create a one-year list of all business expenses (including activity) in an Excel sheet. Keep business and personal expenses separate by drawing a fixed salary from the business.

Understand that net profit does not equal cash flow, comparing the cash flow effect to the profit effect while considering gross profit, expenses, and owner contributions.

Credit purchases delay supplier payments and shape the cash flow cycle, with inventory turning in about two days; profit differs from cash flow as wages and rent impact cash.

Explore how introducing credit sales and seven-day terms affects cash flow, inventory, and profit by splitting sales between cash and credit and tracking the timing of receipts.

See how the cash flow cycle unfolds in week five, linking customer receipts and cash sales to the cash balance, liquidity, supplier payments, and wages.

Calculate your cash flow days with a weekly tracking sheet. Assess days inventory outstanding, days sales outstanding, and days payable outstanding to reach a near-neutral cash flow cycle.

Classify expenses into fixed and variable, keep fixed costs low, and maintain a short, positive cash flow cycle while planning for the foreseeable future.

Use a cash waterfall projection to forecast the next month, planning cash and credit receipts against wages, stock purchases, and supplier payments to stay proactive.

Learn to manage cash flow by accessing timely information, controlling what you can, tracking expenses and fixed costs, and forecasting the future to keep cash flow positive.