Cash flow is the money that is moving in and out of your business. Positive cash flow—when more money is coming in than going out—is a sign of financial health and efficient management. While a lack of cash is almost certainly a periodic reality for small businesses, a consistent negative cash flow is one of the biggest reasons small businesses fail. Below are some ideas on managing your cash flow so that it trends in a positive direction in order to sustain long-term growth.

Know Where Your Cash is Going

Implement a cash flow projection and a cash flow statement.

• Cash flow projection: estimates when money will be coming into the business, when it will be going out, and what you’ll have remaining once expenses are covered and income is recorded. It should help you estimate your projected cash flow for the coming months.
• Cash flow statement: a report that shows cash received and cash paid out in order to illustrate your business’s cash position at the end of every month. If the cash paid out exceeds the cash received for several continuous months, you’ll continue to fall behind, triggering a negative cash flow. This report could also be done on a weekly basis.

Invest in Accounting

In order to keep track of your cash flow, basic accounting skills are imperative. You need to get comfortable with numbers and form an understanding of payables and receivables, cost and profit, and forecasting and budgeting. Use an online cash flow calculator to get started. If math bores you or isn’t your strong suit, consider allocating funds in your budget for the services of an accountant.

Make a Daily Habit of Monitoring Your Cash Flow

It may seem dull to focus on the details of accounting compared to other aspects of running a business, but daily monitoring of cash flow will help to prevent unexpected events in the cash-flow pipeline. Daily check-ins on estimated payables and receivables over the next 30-60 days will give you a clear big picture where finances are concerned.

Daily monitoring can catch downward trends quickly, so you can take action to turn the situation around. Contact clients with overdue invoices, scale back on non-essential costs, and make any needed adjustments to help balance your cash flow.  Use an Excel spreadsheet for daily tracking, or look into the many cash flow management tools and apps on the market.

Keep an Emergency Fund

You need have cash in the bank for inevitable seasons of negative cash flow. Three to six months of reserves is generally recommended for established businesses, while startups and young businesses should aim for more. Of course, the optimal time to look into securing more cash is before you actually need it, especially if you plan to go the route of getting a loan. A line of credit can be a useful source of funds to tap into as needed, but give yourself time to shop around for the best terms.

Focus on Boosting Sales While Improving Short-Term Cash Flow

If you increase your sales, you will increase your cash flow. But boosting sales with existing customers and expanding sales by obtaining new customers all takes time. This is a solid strategy for long-term growth. However, if you’re in a crunch and looking to increase short-term cash flow, try a quicker turnaround in getting out invoices to clients, think about offering discounts for quick payment, and set up a schedule for following up with clients who are historically slow to pay.