Understanding Cashflow: Keeping Your Business Afloat
Cash flow is the lifeblood of any small business. Without it, even the most profitable companies can struggle to pay bills, meet payroll, or invest in growth. Yet, many entrepreneurs focus solely on revenue and profit, overlooking the critical role cash flow plays in day-to-day operations.
In this article, we’ll break down cash flow in simple terms, explain why it’s so important, and provide actionable strategies to keep your business financially healthy. Plus, we’ll show you how Twenty32 can help streamline your accounting so you can focus on what you do best—running your business.
What Is Cash Flow? (And Why Should You Care?)
Cash flow refers to the movement of money in and out of your business. It’s not just about how much you earn—it’s about when that money comes in and when your expenses are due.
The Coffee Shop Scenario
Imagine you own a small coffee shop. Last month, you had $10,000 in sales—great! But most of your customers paid with credit cards, and those funds take 3-5 days to hit your bank account. Meanwhile, your rent ($3,000), supplier invoices ($2,500), and payroll ($4,000) are all due this week.
Even though you’re "profitable" on paper, you don’t have enough cash on hand to cover immediate expenses. That’s a cash flow problem—one that could force you to take out a costly short-term loan or, worse, miss payments and damage vendor relationships.
The 3 Types of Cash Flow
1. Operating Cash Flow – Money from day-to-day business activities (sales, expenses).
2. Investing Cash Flow – Money spent on or earned from long-term assets (equipment, property).
3. Financing Cash Flow – Money from loans, investors, or repayments.
For most small businesses, operating cash flow is the most critical. If this is negative for too long, your business could sink—even if you’re growing.
Common Cash Flow Mistakes (And How to Fix Them)
1. Ignoring the Timing of Payments
Problem: Your clients pay in 60 days, but your bills are due in 30.
Fix: Negotiate better payment terms with suppliers or offer discounts for early customer payments.
2. Overestimating Future Sales
Problem: You assume a big contract will close next month and spend ahead—then it falls through.
Fix: Maintain a cash reserve (at least 3-6 months of operating expenses).
3. Mixing Personal & Business Finances
Problem: You dip into business funds for personal expenses, making it harder to track cash flow.
Fix: Open a separate business account and pay yourself a set salary.
4. Not Tracking Expenses in Real Time
Problem: You only check cash flow at tax time—by then, it’s too late to adjust.
Fix: Use accounting software (like what Twenty32 provides) to monitor cash flow weekly.
How to Improve Cash Flow
Invoice Faster & Follow Up – Send invoices immediately and set up automated reminders.
Cut Unnecessary Costs – Audit subscriptions, renegotiate contracts, and eliminate waste.
Optimize Inventory – Don’t tie up cash in excess stock; use just-in-time ordering where possible.
Use a Line of Credit Wisely – Have a backup fund for emergencies, but avoid high-interest debt.
How Twenty32 Can Help
Managing cash flow is complex, especially when you’re juggling sales, payroll, taxes, and growth. That’s where Twenty32 comes in.
We offer:
Accurate Bookkeeping – So you always know where your money stands.
Cash Flow Forecasting – Predict future gaps before they become crises.
Payroll & Tax Support – Ensuring compliance and avoiding costly mistakes.
Custom Financial Insights – Tailored strategies to keep your business thriving.
Don’t let cash flow challenges hold you back. Let Twenty32 handle the numbers while you focus on growing your business.
Contact us today for a free consultation!
P.S: Cash flow isn’t just an accounting term—it’s the difference between a business that survives and one that thrives. By understanding it, monitoring it, and taking proactive steps, you can avoid financial stress and build a stronger, more resilient company.