Managing your business’s cash flow is crucial to the success of your company.

Cash flow, or the overall flow of money in and out of a business, is necessary for business owners to get a general sense of how your firm is making money. This helps outline necessary debts a company might owe and compares it to the amount of money that it makes.

Think of cash flow in terms of mapping out a road trip — you wouldn’t start driving to your destination before planning it out! 

To help you understand the importance of short-term cash flow, this article will walk you through the ins and outs of figuring out your company’s cash flow process.

Determining your cash flow

Cash flow is the measure of a company’s total inflows and outflows during a certain period of time. 

Inflows are defined as the amount of money that is going into a business — whether that’s in the form of investments, sales or any other method of monetary gain. 

Outflows are the opposite: They measure the payments that a company needs to make to stay afloat. This includes employee salaries, rental dues and loan repayments, amongst other things. 

Another way to think about cash flow may be as a more comprehensive balance sheet that holistically takes into account a company’s assets, payments and other expenses — tracking the way that they move in and out of a company.

Cash flow sections

There are usually three different types of sections that cash flow statements examine: operating activities, investing activities and financial activities.

Cash flow from operating activities consists of the amount of money that is spent and gained on providing the product that you are selling. 

For example, if you run a supermarket, this could mean detailing how much you spend on ordering fresh food from suppliers, the amount that you pay your employees and how many items you sell on any given day. This is the component of your cash flow statement that determines how much total revenue you might be making on any given day.

Cash flow from investing activities is exactly how it sounds — how much money your company is making from outside investors, internal investments and technological investments. 

Something as simple as buying the latest marketing software could be one such purchase you would put down in this section. Your cash flow statement will make note of how much your money is being tied down or put to good use.

Finally, cash flow from financing activities reveals how much money a company owes in order to run. Usually, the bulk of this section focuses on business loans and other debts that a business owner has. 

Together, the three components determine a business’s net cash flow, giving a business owner a general idea of how much net profit their company will have.

Why should I start cash flow forecasting?

Cash flow forecasting takes all of these factors into account and gives a business owner a clear picture of what to expect down the line. Depending on the business, the company’s budget snapshot could range from a period of a few months to years, taking the mystery out of the planning process. 

Similarly, short-term cash flow is a more magnified view of a business’s cash flow over a more restricted period of time. Looking at more immediate results can determine a company’s financial health and ease investor worries as well.

By having a general idea of how your business makes its money, you’ll be less likely to get blindsided by sudden changes in your company’s budget a few years down the line.

What is the difference between cash flow and revenue?

One common mistake that many business owners make is conflating the terms cash flow and revenue. Although they are quite similar, there is some nuance that separates the two.

Revenue is the total amount of money that a company makes during a given period. This is often one of the most important numbers for a business to know because it determines if their firm is making money. In terms of cash flow, revenue can be thought of as only one part of the equation — namely as a component of inflow.

However, cash flow is different because it also takes into account the amount that a company is spending on other factors. Net gain or loss is calculated through the process of cash flow forecasting. Liquidity is also a major factor of cash flow that is not included in revenue. Whereas revenue might tell a business one half of the story, cash flow tells the other half.

Similarly, the term “profit” does not fully encapsulate the term cash flow either. Cash flow tracks the total amount of money moving through a business, while profit is purely the result of subtracting a business’s total expenses from its revenue.

What causes cash flow problems?

Putting together a cash flow forecast could be tedious but it may warn you of a variety of external factors that might throw a wrench into your business plans. Occasionally, your cash flow plans might show negative numbers, which means that you may need to make some changes accordingly.

Here are a few cash flow issues that you may encounter in the future. It’s better to plan for these cases now than later!

Consistent drops in revenue

One of the more worrying components of putting together a short-term cash flow forecast is seeing a negative revenue result.

Encountering something like this may mean that you need to rethink your entire marketing plan if it is happening regularly. Unless you already know that this result is a one-time occurrence, a negative cash inflow can be troubling if you have bills to pay. In a short period of time, your business can fall behind on important payments if you are not making any money — especially if there is no backup plan or emergency funds to support your business.

Re-examine your product. Consider if you are using the correct channels to reach your target demographic. Try a different marketing strategy. 

Whatever it may be, it’s important to act on that negative revenue number and not put it off until the last minute.

Unexpected events

If there’s one thing that the COVID-19 pandemic has taught us, it’s that you can never take your business being open for granted. Personal emergencies, regional disasters like bushfires and other unforeseen circumstances can also quickly spell trouble.

Although putting together a cash flow forecast can’t completely account for outlying issues, it can definitely put you on the right track in terms of preparing for an unexpected emergency. It would be wise to put together an emergency fund that can help tide your company over for a few months if something were to happen. This can be in the form of purchasing the proper insurance to give you and your company some peace of mind.

Overinvestment in the wrong places

When putting together a cash flow forecast, your plan can quickly reveal if you are capable of investing in different parts of your business. 

Conversely, it can also determine if your business is not making quite enough revenue to justify renovating your company’s building, buying the newest technology or onboarding dozens of new workers.

It’s common that many businesses want to start strong with the latest technology and the newest appliances but a cash flow forecast can let you know if that investment should come now or later. Don’t try to bite off more than you can chew.

Customers who are late to pay

Especially for small businesses, short-term cash flow plans can determine how much money you need and the timeline it is needed in. Usually, that means paying off loans by a certain date and paying rent to keep operating each month.

For businesses that have a small consumer base, sometimes customers are slow to pay their invoices, which can lead to some missing income at the end of the month. In fact, “late payments were being paid 30.6 days late in October 2020 compared to 13.4 days late in October 2019,” according to a study done by the Australian Small Business and Family Enterprise Ombudsman. Depending on the type of company you are running, this could lead to confusion about why that money has gone missing. Though customers who are late to pay may not make up a huge portion of your consumer base, these invoices can quickly add up.

Be wary of these kinds of gaps in payment and plan accordingly. 

How could cash flow issues impact your business?

In the worst-case scenario, serious cash flow issues could tell you that your business is not profitable in the long run. 

This means that you might need to reexamine how you are running your business, your marketing strategies and how you are planning to make money. After all, a business that is losing money is never sustainable. Are there avoidable costs that you have that are driving down your profits as well?

Since cash flow also measures the amount of liquid assets that your company has, having negative cash flow could tell you that you need to convert some to more fluid forms. 

The great thing about creating a short-term cash flow plan is the fact that you can figure out what you need to change about your company before you run into any problems.  

Short-term cash flow solutions

Short-term cash flow is primarily a preventive measure. Just because you are currently having cash flow issues, it doesn’t mean that it’s time to shut your doors. 

Here are a few tips on how you can save your business before it goes under.

Compare business models with the competition

Negative cash flow doesn’t just happen out of nowhere. 

Perhaps something within the industry has shifted the marketplace, or a new technological development has made your company fall behind. If your business has been open for a while, maybe it’s time to update your marketing strategies to compete with other up-and-coming firms. Sometimes an initiative like a social media refresh can greatly help your business reach your target demographic. 

Especially in the age of the internet, it can also be easy to compare the types of services you are offering with that of your competitors. Factor in how much they are charging for their services and see if your own prices are competitive. Try adding new products to your company and see if you can gain more revenue through those means.

Upgrade invoice methodology

If you’re having trouble with customers not paying their invoices on time, perhaps it’s time to look into upgrading your payment collecting system. 

Follow up on invoices with reminders to encourage customers to pay on time, lessening the impact on your cash flow statement. Late fees for overdue payments could also be one way to ensure that people will pay on schedule. 

In the end, remember that you are running a service and your company should be properly paid.

Find other sources of funding

Lessen your company’s outflow costs by turning to other sources of funding. Sometimes you aren’t able to get the payment that your business needs and you may have to look to other financing activities to achieve positive inflow.

In those cases, companies like UnLock can help you bring those numbers up with our ‘Buy Now, Pay Later’ B2B solution, which offers companies extra time to settle their invoices. UnLock can help you extend your supplier terms up to 90 days, giving you some leeway. 

Because UnLock is not a bank, we don’t take securities over personal property portfolios. As a result, we can be a great option for your business to look into.

UnLock your company’s potential

Learn more about how UnLock can solve cash flow issues at your business. You can also write to us today at or call 1300 257 387 for more information.