Small-Business Cash-Flow Management
Profit measures economic performance over a period. Cash flow measures when money actually enters and leaves the business.
Why profitable businesses run short of cash
- Customers pay after expenses are due.
- Inventory absorbs cash before it is sold.
- Loan principal payments reduce cash but are not always an expense on the income statement.
- Taxes and annual bills create uneven obligations.
Weekly cash-flow review
- Record current cash.
- List expected collections by date.
- List payroll, vendor, tax, and debt obligations.
- Identify timing gaps.
- Update conservative and optimistic scenarios.
Build reserves deliberately
Operating reserves can reduce reliance on emergency borrowing. The appropriate amount depends on revenue volatility, customer concentration, fixed costs, and access to credit.