Why Cash Flow is King and Critical to Business Success

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While it’s important to know bank balances and profits for your business, understanding – and managing – how cash flows through your company is most critical to its success.

Cash flow refers to how money moves in and out of a business – and knowing how much available cash your business has today and in the future, will allow you to make sound financial decisions.

Cash flow can be positive or negative.

Positive cash flow happens when the funds coming into your business from sales and other sources such as accounts receivable (A/R), etc., add up to more than the amount of the cash leaving your business through accounts payable (A/P), monthly expenses, salaries, etc.

Negative cash flow occurs when the amount of money exiting your business is greater than incoming cash – and this is not a good scenario for any business.

Monitoring and managing how cash flows in and out of your business can help you avoid negative cash flow and ensure there is enough cash for all your financial obligations. To start, you’ll need to list business transactions. To do this create a worksheet by downloading a template, or using an accounting software package. Transactions include:   

  • All bank balances, outstanding payments and transactions: If one of your suppliers hasn’t cashed your cheque yet, it won’t be reflected on your bank balance. Identifying what’s cleared and what’s outstanding will start to give you an idea of your true cash balance. 
  • A/R (who owes you money): Listing who owes you money and creating a schedule of when you expect to receive funds allows you to predict how much cash you’ll have and whether you will meet current and upcoming financial obligations.
  • A/P (what do you owe): This list should include what you owe to vendors, Canada Revenue Agency (CRA), employees, etc. Similar to A/R, creating an A/P schedule can help determine when future cash outflows will be occurring and ensure the company doesn’t run out of cash with bills outstanding.

Once you’ve captured all this information the formula to calculate your available cash balance is simple: subtract outstanding payments and money you owe on your bank balance

Bank Balance – Outstanding Payments – Current Liabilities = Available Funds

Staying on top of cash flow is the best way to know how much cash is available and to avoid the risk of running out of money.

Quick Tips for Improving Cash Flow

Managing cash flow can be tricky. Here are some quick tips to help you and your business:

Know your sales cycle. Understanding when your business experiences income peaks and slowdowns will let you plan your financing according to the times when cash is available.

Consolidate your payments. Using an account payable platform like WayPay allows you to easily consolidate all your payment sources – bank accounts and credit cards – in one place to securely pay suppliers, vendors and employees quickly and cost-effectively.

Collect payments on time. Getting into the habit of invoicing customers regularly, depositing payments immediately and following up with customers on late payments will improve cash flow significantly.

Keep inventory at reasonable levels. While you need to be prepared to meet customer demand, too much inventory ties up your cash unnecessarily. Keeping inventory at reasonable levels leaves you with more available cash.

Get credit before you need it. Arranging for credit options including credit cards and lines of credit in advance will help when short-term cash problems arise.

Host a sale. Having a sale is one way to increase funds; just make sure that any pricing discounts will not impact your profit margin significantly.

Early payment discounts. This can work for your company in two ways. You can offer early payment discounts to your customers to get cash flowing into the business. Or, you can save money by taking advantage of early payment discount programs from suppliers. The key is to make sure that any changes you make to your cash flow schedule do not result in a cash flow shortfall.


The information in this article is for educational and information purposes only and should not be relied upon for decision making. Always seek the expertise of a professional advisor or accountant prior to making any decisions.

Paul Chappel

As Vice President, Partner Success, Paul heads up partner relationships, developing, fostering, and supporting WayPay’s growing set of strategic alliances. With 20 years of experience in financial services and lending, Paul brings industry-leading insight into the team to help strengthen our product offering for clients. His coaching, support, and leadership of the sales team ensure that our clients are kept up-to-date with not only the latest WayPay product offerings but also industry and SMB best practices.