Cash Flow

Cash flow is about timing

Cash flow is money moving in and out during a period. A profitable business can still run short of cash if customers pay late or stock must be purchased first. A sale made today, a payment received today, and money available to transfer today can be three different dates. For a simple cash plan, use the date money will actually be available. For your accounting books, use your chosen method consistently; Bookkeeping explains the difference. Do not count an unpaid invoice as cash ready to spend.

Make a weekly or monthly cash plan

Start with opening cash, the business money available at the beginning. Add expected money in, with likely receipt dates. Subtract money out, with due dates. Opening cash + money in − money out = closing cash. Carry closing cash forward as the next period's opening cash. List loans and owner contributions separately from customer sales, and loan principal and owner withdrawals separately from normal operating expenses. This way the cash plan shows the bank movement without pretending borrowed money is revenue or every payment is a tax deduction.

Use careful estimates, not hoped-for sales

Write a normal case and a slower case. A case is simply one set of assumptions. In the slower case, lower sales or delay a large payment and see which week becomes tight. Confirm bills you already owe first; do not move them to a later date without the provider's agreement. If bookings are not confirmed, label them estimates. Keep money for tax collected, likely refunds, and other obligations separate from money you can use freely. A spreadsheet can add totals, but it cannot know whether your assumptions are realistic.

Prepare for slow months and late payments

Seasonal means demand changes during the year. A cleaner may have cancellations; a seller may have fewer orders after a busy season. Look at actual patterns instead of assuming every month repeats the strongest month. Build a reserve gradually if possible, set clear payment terms, send invoices promptly, and follow up politely. Ask suppliers about options before a bill becomes overdue. Avoid buying extra stock solely because it is discounted if it leaves no cash for necessary bills. Borrowing can move a shortage into the future with fees; work out repayment before using it.

Understand deposits, payouts, and refunds

A deposit can help cover materials or reserve time, but it comes with responsibilities and possible refund rules. Explain the amount, the remaining balance, and cancellation terms before the customer pays. A payment processor may hold funds, deduct fees, or delay payouts; a chargeback is a payment dispute that can reverse money and add a charge. Read provider terms and keep proof of delivery or completed work. Do not rely on tomorrow's payout until you know its status. Use a suitable hosted payment tool; never collect card numbers in a worksheet, email, or a homemade form.

Plan savings and tax set-asides separately

A reserve is money kept for a particular need, such as replacing equipment, a quiet month, taxes, or a known annual bill. List each purpose and due date. There is no universal tax percentage that fits every owner; ask a qualified tax professional to help estimate based on your income, business structure, other earnings, and location. Moving money into your own tax savings pot is not itself a business expense. Sales tax collected is money owed to the taxing authority under its rules, not a buffer for everyday spending.

Paying yourself depends on structure and available money

Paying yourself might be an owner draw, salary through payroll, or a distribution, depending on how the business is organized and taxed. They are not interchangeable labels. A sole proprietor usually takes draws rather than deducting a salary paid to themselves. Other structures have different rules; get qualified help before setting up payroll or distributions. Begin with the cash obligations: bills, taxes, refunds, and reserves. A bank balance can look large while much of it is already committed. Plan a manageable amount and review it instead of transferring whatever remains on a good day.

Grow only when cash and capacity support it

Growth can require money before it produces more money: larger supply orders, a helper, insurance changes, equipment, or a new workspace. Compare the extra cash needed and the extra contribution expected, not only extra sales. Capacity means the work you can complete safely and reliably with available time and tools. If a new booking creates overtime, travel, or mistakes, the profit may be smaller than expected. Test an expansion in a limited way, set a maximum spend and review date, and keep a way to stop if the numbers or service quality worsen.

Steps to take

1. List starting business cash without private account details.
2. Write expected receipts by the dates money becomes available.
3. List bills, loan payments, refunds, and owner withdrawals by due date.
4. Calculate closing cash and carry it into the next period.
5. Repeat with lower sales or a delayed payment.
6. Choose a reserve purpose and a review date before committing to growth or owner pay.

Go deeper in related modules

Not sure what a word means? Check Business Words Made Simple.

• Bookkeeping — understand the records behind your cash plan
• Tax Overview — estimate and plan tax obligations
• Business Plan & Audience — connect your numbers and message to your plan
• Selling Online & Taking Payments — checkout and provider choices
• Customer Retention — dependable service and repeat business
• ChatGPT & AI: Prompt Library — draft with fictional examples, then check the result

Official guidance

Use these official sources for current rules and details. They do not replace advice for your particular business.

• SBA: Manage your finances (opens in a new tab)

  Financial planning and recordkeeping guidance.