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Financial Planning: How to Manage Your Business’s Cash Flow

January 12, 2023

13 minread

byCasey Clark

Casey Clark
Casey Clark

CEO, Co-Founder

Chicago, IL

As a business partner, he helps his clients get a holistic view of their financial health by slowing down to talk about numbers. Then, he breaks down even complex problems into one or two elements to help them break through their barriers of growth.

As an entrepreneur, cash flow is vital to the survival of your business. It’s what keeps your financial engine running. Despite this, many business owners don’t have a handle on their cash flow.

Regardless of how great your business model is or how profitable you are, you can’t survive if you can’t manage your company’s cash flow. According to a study, 82% of businesses that fail cite cash flow issues as the leading cause. So, even if your business is excelling in other areas, you must stay focused on managing your company’s cash flow to avoid putting your business in danger. At this point, you can benefit from financial advising for small businesses.

What is Cash Flow Management?

Cash flow management is the process of tracking how much money is coming into and going out of your business each month. As an entrepreneur, understanding how cash flows in and out allows you to plan and act strategically to manage and grow your business. Cash flow management helps you identify how much money your business needs to cover expenses (like paying staff and suppliers). It enables you to predict how much money will be available in the future.

Since things change daily, having a proper understanding of how much money your business has from one moment to another is very important in ensuring your business has enough money to keep running. Cash flow management is keeping track of this flow and analyzing any changes, which, in turn, allows you to spot trends, avoid obstacles, identify opportunities, and prepare for the future.

We work with hundreds of small businesses, and it is in our methodology, financials are at the core of building a healthy business. Here are 4 steps you can take to set up your financials to ensure you are properly managing your businesses’ cash flow, now and in the future.

Step 1 – Create a Cash Flow Document

Regardless of how well your business is performing or how profitable you are, your business can’t survive if you can’t manage your cash flow. Often small business owners struggle to get their numbers together.

If you fall into this category, you’re not alone. The first step in avoiding financial failure in your business is getting a firm grasp of your cash flow and its impact on your business. The key things to look at when you’re pulling together a cash flow statement are revenue and expenses. Expenses mean everything from payroll to advertising, COGS, Credit Card fees, tech, and admin fees.

With all of this information in one place, you can see where you might be spending too much or where you could be spending more to grow your business. This document will allow you to plug in your revenue and expenses to understand how much money flows in and out of your business each month, and it will enable you to start making projections into the future based on multiple scenarios.

Step 2 – Assign a Cash Threshold

Having a cash threshold as a business owner allows you to be objective, not emotional. When growing your business, it’s easy to let your emotions take over, especially when you don’t have numbers and data to back up your decision-making. Developing a cash threshold can help you remove that emotional attachment to approach economic risk with logic, not emotion, and rest easy knowing you have enough money in the bank.

Finding your cash threshold is easy, you need to look at the amount of money you need in a month to cover expenses multiplied by the number of months you need the money to last (ex: 3 months).

$ mo. burn x # mo. = needed cash threshold 

Once you have your cash threshold, you can build your cash flow pro forma to run all your decisions through.

For example, what happens to your cash if you hit your goal this year? What happens if you miss by 25%? What happens if you exceed your goal by 30%? From there, what can you do to re-invest in your business for growth or remove to stay profitable?

Step 3 – Identify your Cash Flow Levers

Now whether you are exceeding your cash threshold or nowhere near it, it’s important to understand the levers in your business you can play with to adjust the gap in your cash flow and tighten your financials.

Here are the top 2 levers in any business that you can manipulate to positively impact your cash position:


Increasing your prices can have an immediate impact on revenues and profit. Without looking at your margins and breaking down your offerings, raising prices will help you improve the business from a revenue standpoint.

The process of raising your prices can be intimidating, but with careful planning and a tactful approach, you’ll discover that implementing a price increase can not only boost your sales, but it’s one of the easiest levers to transform your profitability. Here are a few ways to implement a price increase plan:

  • Increase prices by adding fees instead of raising prices for the actual product or service. This works particularly well to cover a specific cost such as raw materials.
  • Introduce new pricing in stages. If you’re worried about how your customers will react to the new pricing, consider raising prices for a small group of clients first.  If most of those clients accept the new price, you can expand the increase to your entire customer base.
  • Keep existing customers at the current price level but charge higher prices for new customers. Be sure to make existing customers feel special by telling them they’re getting preferential treatment.
  • Create new offerings or bundles. If you aren’t comfortable increasing your pricing, consider creating a new product or service bundles by adding features that don’t hurt your profit margins, but make a big impression on the customer. You might also consider creating a lower-tier product or service.


Much like increasing your pricing, increasing your conversion rate will have a direct impact on your revenue. You can implement many strategies within your sales process to kick up your conversion rate. Here are a few simple strategies that can help you do just that.

  • Refine your sales funnel. Take a look at each step of your sales process from first contact to sale and identify your conversion for each step. If there is a step where you see a significant drop-off, start there by asking yourself what might be missing. Are you asking for the sale too soon? Are you being faced with multiple objections? Identify those challenges and start working on those first.
  • Learn to handle objections. The key to being successful is to learn how to uncover and resolve objections quickly and effectively. There is nothing worse than letting an objection go unaddressed through the sales process. The faster you isolate the objection and resolve it, the quicker your prospect can let go of the objection and move into a buyer’s mindset.
  • Create a sense of urgency. Creating urgency for your product or service isn’t about setting a limited time to buy.  It’s about need. If you want people to feel a sense of urgency for buying your product or service, you need to know why they need it now.

Step 4 – Build Cash Scenario

At this point, we’ve shared how to create a cash flow pro forma, and how to use the levers of your business to close the gap on your cash threshold. Using your projections, you can start running some scenarios around things with a degree of uncertainty about them. For example:

  • You lose 50% of your clients
  • You get hit with a lawsuit
  • There is a global pandemic

When you have clarity of cash and scenarios, run it starts to take the thought out of decision making. Scenario planning shows you what decisions to make and when to make them.

Here is an example of a Financial “Traffic Light” Scenario Plan based on how your business is affected. Be ready for anything.

Financial “Traffic Light” Scenario Plan

Scenario planning utilizes your cash flow forecast and plugs in some of the changes to see how each change may affect your future cash flow. (For example, if you suddenly lost 50% of your customers).  It gives you the ability to think clearly and prepare for possible changes in your business environment.

Think of your current situation as plan A, scenario planning allows you to ask the “what if” questions so that you can proactively identify key levers to pull if x happens. Thus helping you to remove the thought from decision making.

To get started, you need to understand your true starting point. This number is not just cash in the bank. Your current cash position must take into account multiple factors, including cash in the bank, accounts receivable, accounts payable and unearned revenue (all covered in your cash flow pro forma).

As an entrepreneur, the survival of your business is contingent on not only having positive cash flow but also a solid understanding of your cash flow. Understanding how to track and project your cash into the future will help you run a more profitable business.

If numbers aren’t your thing, and you don’t know where to start, you don’t have to go at it alone. Schedule a free two-hour session to dig into your business and develop a plan.

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