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Keep Cash on Hand While Running a Small Business

If there is no money, there is no business

By SCORE | April 20, 2012

A common problem for small business owners is the struggle to maintain adequate cash flow levels.

Without cash, a business must eventually close its doors.

Understanding and managing your company’s cash flow will help you measure the amount of cash on hand and prepare for cash flow shortfalls in the future.

Here's how to be vigilant about cash flow.

Do the math


Cash flow is the movement of money in and out of a business. Cash inflow is the movement of money into your business, and most likely comes from the sale of goods or services to your customers. Cash outflow is the movement of money out of your business, and is generally the result of paying expenses. By projecting the inflow and outflow of your business's cash, you can determine the amount of cash that will be available during a designated period of time.

Prepare your profit and loss statement


Your business plan should contain several financial statements. If you’re a start-up business, base your estimates of cash inflow and outflow on the revenues and expenses listed in your profit and loss statements. Complete your profit and loss statement before completing your cash flow statement. Over time, you will be able to base cash inflows and outflows on actual historical data.

Develop a cash flow statement



A cash flow statement measures cash flow over time. During your first year in business, you should include a month-by-month cash flow statement in your business plan. If you’re seeking a loan, an important feature of your cash flow statement is that it will show the lender exactly how you’re going to afford loan payments.

Get help from SCORE


Learning to produce and analyze cash flow is essential for business success. If you need help computing your cash flow, or if you’d like to learn more about financial management, visit the SCORE chapter near you.

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