Cash flow management 101

Cash flow, simply put, is the money flowing in and out of your business. Good cash flow is essential and is a sign of a healthy business. If you're new to managing cash flow, the information in this guide may be useful to you.

Cash inflows & outflows

Successful cash flow depends on the timing of money flowing in and out of a business. Income and expenditure rarely happen together so good cash flow can help you prepare for shortfalls.

Inflows may include:

  • Payment from customers for goods and services
  • Receipt of a bank loan
  • Interest or returns on deposits or investments
  • Shareholder investments
  • Rental income on investment properties

Outflows may include:

  • Payments for stock, raw materials or tools
  • Wages, rent and daily operating expenses
  • Purchase of fixed assets
  • Loan repayments
  • Dividend payments
  • Drawings from the business
  • Payments for income tax, GST and other taxes

Cash surpluses & shortfalls


Here are some options you might like to consider to help you make the most of your surplus:

  • Move it into a term deposit or business savings account to earn interest and use it to fund expansion
  • Make advance payments to your creditors, this will enhance your credentials


Here are some options you might like to consider to help you reduce the impact on your business:

  • Set up an overdraft facility or review your current overdraft limit. Your overdraft should cover the highs and lows of seasonal business variations
  • business credit card is a useful short-term cash flow management tool
  • Longer term, think about term loan finance solutions

Why is healthy cash flow important?

  • Ability to absorb, manage and prepare for the unexpected
  • Save money by minimising interest charges for revolving credit facilities like credit cards or overdrafts
  • Identifies surpluses that can be invested and earn interest
  • Gives you more control of your business, enabling you to make informed decisions about expansion and development

Does your business have good cash flow?

These questions may help you figure out your business cash flow position:

  • Do you ever go into overdraft unexpectedly?
  • Do you have seasonal cash flow shortages where you struggle to meet expenses?
  • Do unexpected bills send you off to the bank for an emergency (temporary) overdraft?
  • Are you waiting for customers to pay you before you pay suppliers?

If you answered yes to these questions, you may be experiencing some problems with your cash flow. Consider implementing some better cash flow management practises, or speak to your accountant or your bank for more guidance.

Two easy steps for managing cash flow

1. Prepare a budget

Budgeting for the business financial year will help you foresee any cash flow problems before they occur. Your bank may also need to see your budget if you're applying for a business loan to help with your cash flow. You may want to split your budget into monthly cycles for closer management.

2. Forecast cash flow

Think ahead to what the next 12 months may bring, and monitor your cash flow forecast with what is actually happening in the business.

A detailed day-to-day cash flow forecast can help you predict how much you will spend on businesses expenses, and make in profit from sales, which can help you plan ahead for cash flow shortfalls and surpluses.

Generally your forecast should include:

  • Cash receipts
  • Cash payments
  • Surpluses and shortfalls in receipts over payments
  • Opening bank balances
  • Closing bank balances

For more ideas on how to stay in control of your business finances, see our 10 tips to manage your business cash flow.

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