Do you understand your cash flow cycle? 

Most small business owners don’t fully understand their cash flow cycle, why it is essential to keep a pulse check of their cash flow and how it can hugely impact their business. In simple terms, cash flow is the heartbeat of your business. If you miss a few beeps, it’s an indication that something is wrong, but if this happens again, your business is diseased. However, if the beep goes missing, it does not matter how good your product or service is or how much you can sell; your business is dead.

What is Cash flow?

Cash flow refers to the net balance of cash you have after being paid for the work you have done and making all payments due at a certain point in time. It is the net amount of cash moving in and out of your business. This cycle consists of activities like payments received, payments made and cash borrowings etc. Therefore, cash flow can be positive or negative. 

Positive / Negative cash flow

Positive cash flow means you still have cash in hand after making payments due, or you were able to make all payments on time, even if you are left with no cash in hand. Positive cash flow indicates that a company has more money moving into it than out of it. However, if you are short of money and still have payments due, your cash flow is negative. 

Categories of cashflow

Cash flow can be broken down further into three major categories:

Operating cash flow: 

This refers to the net cash generated from a company’s regular business operations. For example, your business is getting enough money to pay off all necessary expenses like material, payroll, insurances, rent etc.

Investing cash flow: 

This refers to the net cash generated from a company’s investment-related activities, such as investments in securities, the purchase of physical assets like equipment or property, or the sale of assets. In companies that are growing and investing in assets, product development, customer services, investing cash flow will generally be harmful as these are all long-term investments. However, if the company is investing in securities and real estate, it can be positive depending on the type of the asset.

Financing cash flow: 

This refers to how cash moves between a company and its investors, owners, or creditors. The net cash generated to finance the company may include debt, equity, and dividend payments. For many small and medium-sized businesses, this cash flow will be negative most of the time. Owners usually reward themselves with regular incomes under payroll. The actual return on investment for small business owners is the total value of the business if they ever sell it.


Note for small and medium business owners; the number one priority is the operating cash flow. Once they have a good grip on this cash flow, there is room for them to look into investing cash flow.

Seven ways to improve your operational cashflow:


Make invoicing easy, efficient and straightforward.

If you cannot invoice your clients immediately and make it easier for them to pay, then you are creating digging a grave for your business. Invest time, money and resources in making invoicing process easier for your employees and yourself. 

You can choose an online payment system to make invoicing, scheduling and follow up processes easier and efficient for yourself and your business.

Payment Terms – do your research.

Don’t just follow what others do; understand your cash flow cycle to decide when and how much you need to pay. If you know the process and match the terms to have cash in hand to pay your creditors and employees without borrowing, you are out of danger. Negotiate longer terms with your creditors and relatively shorter terms with your clients.


Accept payment via all available options.

Accept payment in all forms, i.e., cash, cheques, account transfer, credit cards, debit cards, PayPal etc. Don’t give a chance to your client to say, “Sorry, I don’t have your specified medium to pay so that I will pay later”. Instead, ask them what is most convenient for them to pay and accept the payment immediately.

Reward those who pay immediately.

Factor some cushion in your pricing and offer that as a reward to those who pay instantly. This can be a discount in the pricing or a complimentary product or service after multiple repeat businesses. Make sure you communicate that the reward is related to instant payment and reinforce this behaviour of your client by acknowledging their act.

Remove waste from your business.

Understand the difference between a value add and non-value-add activity in your business. For example, you may have to do compliance activities like WHS and insurance as you cannot run your business without them. However, apart from such activities, please do not spend money and time on things that directly or indirectly produce value for the customer that they are not willing to pay for.  This assessment will keep your cashflows to a minimum and help you keep your cash flow positive.

Invest in continuous improvement.

Invest time and efforts to continuously improve each product, process, and system that you use. Encourage your staff to generate and share ideas to improve efficiency and customer experience. Test and learn activities to measure the impact before fully implementing a solution. If your total annual expenses are 500,000, then a 1% improvement means an opportunity to save at least 5000 a year. Go for minor incremental improvements.

Dedicate time to work on your business and not just in your business.

Most small business owners are constantly in a survival mindset. It’s like someone drowning and using all their efforts to catch a breath. To be at your optimal level, you need to dedicate time every week or month to step away from day to day and think about three, six or twelve months down the line. This distance will allow you to see things you can’t due to your proximity to the business. You will notice that this will help you reduce waste and work on continuous improvement projects. Another good way to initiate this habit is to hire a business coach.

A business coach can help you identify your risks and put together cash flow strategies to mitigate future challenges. Why not take our "Business Health Assessment" to discover the areas you need to focus on to build a sustainable and self-propelled business. You can also book a complimentary coaching session with Atif to discuss your immediate challenges and create an action plan.