Running a successful business in today’s tech-driven landscape is challenging and demands a profound understanding of one’s financial situation.

Did you know that a Harvard Business School study states that 48% of all business organisations fail to implement their strategic plans?

Implementing effective cash flow techniques for SMEs can often be challenging. These obstacles can significantly affect their financial health and hinder growth opportunities. We are here to equip you with actionable strategies for effectively analysing and managing your cash flow, ensuring financial stability.

Let us delve into practical techniques to empower you to thrive in today’s competitive environment.

What is Cash Flow?

As the term suggests, cash flow refers to the movement of cash equivalents in and out of the business. Cash inflow, or positive movement in cash, signifies stability in an organisation’s finances and the capacity to grow, pay for expenses, and reinvest in operations.

 On the other hand, cash outflow denotes the need for funding to continue operations. Cash flow analysis is crucial for creating budgets, identifying the issues, and ensuring financial stability.

What is Cash Flow Management?

Cash flow management is a process of analysing, monitoring and optimising the company’s finances. A full view of a company’s finances helps detect potential issues and plan accordingly.

Cash Flow Management involves examining three key areas such as follows:

Types of Cash Flow

Operational Cash Flow

It represents the revenue generated and expenses incurred by core business operations. These insights help businesses better understand cash generated and its utilisation so they can make targeted improvements that lead to profits and efficiency.

Investing Cash Flow

Investing Cash Flow refers to the amount of cash a company has generated and spent on various investment activities. It includes purchases of assets, investments in securities, and sales of assets or securities. These insights help businesses examine and understand the ROI and make informed decisions about future investments to grow in new markets.

Financing Cash Flow

Capital structure refers to how a company raises and uses money through borrowing, issuing stock, and paying dividends. Examining these activities shows how much a company relies on borrowing and its ability to handle financial responsibilities.

Analyse your financing activities to evaluate your company’s reliance on debts and ability to meet financial obligations. This knowledge is crucial when making decisions regarding capital structure, dividend policies, or debt repayment plans.

Why is Cash Flow Management Important?

Cash flow management is essential for maintaining a balance between spending, saving, investing, and growing. It ensures that a business has enough cash to meet its short-term obligations. A company’s cash flow statement assists in understanding and providing insight into funds in and out of the business over a specific period. It helps assess the current financial situation and estimate forecast demands.

It offers the information necessary for operations to run steadily and smoothly, prevent future financial crises that could damage a company’s reputation or future chances, and aid in creditworthiness growth.

Understanding Cash Flow Statement

A cash flow statement is a document that summarises the company’s cash inflow and outflow. Its main goal is to give stakeholders a thorough understanding of the company’s liquidity and solvency so they can evaluate its performance and financial health. This financial statement complements the balance sheet and income statement. It breaks the business finance analysis into operating, investing, and financing activities.

Steps to Prepare a Cash Flow Statement

  1. Gather Financial Data – Gather essential data such as Income statements and Balance Sheets.
  2. Calculate Cash Flow from Operating Activities – Adjust Net Income by adding back expenses (like depreciation and amortisation) and subtracting non-cash revenues. Then, account for changes in working capital.
  3. Calculate Cash Flow from Investing Activities – Identify capital expenditures (cash outflows for purchasing or improving fixed assets) and cash received from asset sales (cash inflows from selling fixed assets or investments).
  4. Calculate Cash Flow from Financing Activities – The company’s cash flow statement summarises the net cash inflows and outflows associated with equity and debt transactions. It covers subjects like bond issuance, stock repurchasing, debt repayment, and stock issuance. It is calculated by adding up the cash inflows (profits from the issuance of securities) and deducting the cash outflows (repayments and repurchases). This measure aids in evaluating how a business finances its expansion and operations.
  5. Combine Cash Flows—Combine the cash flows from Operating, Investing, and Financing activities to determine the total net change in cash for the period.
  6. Calculate Ending Cash Balance – Add the net change in cash to the beginning cash balance (from the Balance Sheet) to obtain the ending cash balance.

5 Common Techniques for Cash Flow Analysis

Various techniques can help optimise cash flow and maintain financial stability in the business. Following are a few techniques that business owners find useful.



How it Works 


Cash Flow Forecasting 

Predicting future cash inflows and outflows. 

Based on historical data and future projections. 

Enables better financial planning and decision-making. 

Working Capital Management 

Optimisation of current assets and liabilities. 

Balances accounts receivable, accounts payable, and inventory levels for sufficient cash flow. 

Enhances liquidity, reduces costs, and improves efficiency. 

Cash Conversion Cycle Reduction 

Decreasing the time between paying suppliers and receiving cash from sales. 

Streamline processes, negotiate favourable payment terms, and improve inventory management to shorten the cash conversion cycle. Improve cash flow and capital availability. 

Allocates cash for operational needs and reduces financial requirements. 

Cash Flow Hedging 

Mitigating risks associated with cash flow fluctuations. 

Manages financial risks related to fluctuation in interest rates, exchange rates, or commodity prices. 

Protects business from potential losses such as currency volatility and interest rate changes. 

Debt & Credit Management 

Managing borrowing and receivables to optimise cash flow. 

This strategy entails monitoring your creditworthiness, fostering positive relationships with lenders, and negotiating favorable borrowing terms. 

Optimised financial costs and maintained financial flexibility. 

Tips to Improve Cash Flow:

Inventory management

Overstocking often results in capital being tied up, which can result in losing potential sales opportunities. To ensure timely replenishment and streamline operations, businesses may digitise their inventory systems.

Optimise invoice process

Even though it seems straightforward, streamlining the invoicing process is essential and productive. Use a reward and penalty system with a certain degree of strictness to the invoicing process to guarantee on-time payment. Businesses can also leverage digital invoicing tools to streamline this process and accelerate billing cycles.

Leveraging automation for efficiency

Advanced financial tools and software can be a terrific way for businesses to analyse, forecast, and maintain financial stability. They can help make more accurate and efficient financial decisions. Advanced analytical tools, such as Pulse, can provide businesses with real-time insights to conduct effective analysis, accurately forecast, and maintain financial stability.

Encourage vendor cooperation

Create a good rapport with the suppliers and practice negotiating better payment terms and conditions. Trust-based collaborative partnerships encourage adaptability in the face of fluctuations in cash flow.

Leverage data analytics for insights

Harness the data analytics capabilities through advanced analytical tools like Pulse to derive actionable insights. These insights enable better decision-making by maximising opportunities available while minimising market risks.

Below are a few strategies from Forbes Finance Council members to improve cash flow and working capital management.

  • The key to improving your cash flow is to decrease your liabilities and improve your assets. Reducing costs and expenses is a target even when your business is doing well. Check your liabilities and turn them into assets that generate cash flows. You can sell your unused land or vehicles to generate short-term cash flows. – Burak Arkun, Tailwind Airlines
  • Opening more payment channels and honouring buyer payment preferences are smart strategies to increase cash flow. Automated AR processes offer customers the preferred digital payment channels, speeding cash flow and reducing payment lag. – Justin Main, Bill Trust
  • When a supplier is not paid on time, B2B companies should not assume there is an issue with the payment but look earlier in the order-to-cash process. This helps uncover issues stemming from when the interaction with the buyer began, and an invoice was created, such as inputting the wrong price. Automated payments and invoicing systems can remove complexity and improve cash flow. – Brandon Spear, Trevi Pay

Tips to Handle Cash Flow Crises

  • Embrace customers who pay their invoices on time by offering them discounts to significantly increase the speed of cash inflow.
  • Opt for leasing the equipment instead of purchasing it. This approach can convert a large upfront expense into a manageable, periodic payment.
  • Credit control strategies that work should be put in place to reduce unmanageable debt losses, speed up payments, and enhance cash flow.
  • Extend payment terms with suppliers to ease cash outflows, like a construction firm extending terms to 60 days (about two months).
  • Take advantage of subsidies and relief programs during crises, beneficial to many small businesses during the pandemic.
  • Take advantage of subsidies and relief programs during crises, beneficial to many small businesses during the pandemic.
  • Using accurate revenue recognition procedures to ensure that your accounts accurately depict the flow of funds and that you can address any shortfalls by raising prices or renegotiating terms with suppliers and customers.

Moreover, companies can gain significant advantages from the cash management interface offered by Pulse. Pulse integrates Open Banking and Open Accounting to provide real-time insights and actionable data.

It simplifies complex financial metrics into intuitive graphs, empowering businesses to easily monitor cash flow, profit margins, and liquidity. Stay ahead with Pulse’s proactive adjustments and customisable reports, enhancing liquidity, managing risks, and navigating economic uncertainties effectively. Whether you’re a startup or a seasoned business, Pulse ensures you’re always informed and in control. Sign up now to get started and transform your accounting business.