Managing cash flow is one of the most critical aspects of running a successful business. Whether you're just starting out or have been in the game for years, getting a grip on your cash flow is essential for long-term growth and stability. Cash flow management may sound complicated, but it doesn’t have to be.

This guide breaks down the basics of managing business cash flow and offers simple tips that you can put into practice right away.

What is cash flow?

Cash flow refers to the money moving in and out of your business. It’s not just about revenue—cash flow tracks every dirham that enters and exits your accounts.

The two main types of cash flow are:

1. Cash Inflows: Money coming into the business (sales, investments, loans, etc.).

2. Cash Outflows: Money going out of the business (operational costs, salaries, inventory, etc.).

When more cash comes in then goes out, you’re in a positive cash flow position. When more cash flows out than in, it’s negative cash flow—and that’s where things can get tricky.

Why cash flow management is important

You might be making great sales, but if your cash flow isn’t managed well, it can lead to problems. For instance, you could find yourself unable to pay employees, suppliers, or rent—even if your books show a profit. 

This is why cash flow is often referred to as the “lifeblood” of a business. You need money on hand to handle day-to-day operations, and having a surplus allows you to invest in growth opportunities.

Understanding the cash flow statement

If you’re not already looking at a cash flow statement regularly, it’s time to start. This financial report summarizes how much cash enters and leaves your business over a period of time, usually on a monthly or quarterly basis.

A typical cash flow statement consists of three parts:

1. Operating Activities: Cash flow from your core business operations (e.g., sales revenue, paying suppliers).

2. Investing Activities: Cash flow related to buying or selling long-term assets like equipment or property.

3. Financing Activities: Cash flow from external funding sources like loans or investments.

Getting familiar with this document will help you see where your money is going and where you might need to make adjustments.

Top tips for managing your business cash flow

Now that we’ve covered the basics, let’s talk about how to manage your cash flow more effectively.

1. Keep a cash reserve

Think of your cash reserve like a safety net. Having some extra cash on hand helps you deal with unexpected expenses—like equipment breakdowns or seasonal slowdowns—without disrupting your operations.

How much should you keep in reserve? A good rule of thumb is to have enough cash to cover at least three to six months' worth of expenses. This will give you some breathing room when the unexpected happens.

2. Monitor cash flow regularly

If you’re not already tracking your cash flow, it’s time to start. Thankfully, you don’t need to be a financial expert to do this. Tools like Hubpay, QuickBooks, or Xero allow you to monitor cash flow in real time, making it easier to stay on top of your business’s financial health.

Hubpay, for instance, is especially useful for businesses that deal with cross border payments. It offers a streamlined way to send and receive funds globally, helping you stay on top of your cash flow by providing transparent tracking of your money transfers. This can be particularly helpful if you’re managing cross border payments and want to avoid surprises in your account balances.

Regular tracking helps you catch problems early. For instance, are you constantly falling short of covering your expenses at the end of the month? Are customers paying late? By consistently monitoring your cash flow through Hubpay and other tools, you can identify these issues before they turn into major problems.

3. Speed up receivables

The quicker you can get paid, the healthier your cash flow will be. Here are some ways to speed up receivables:

• Invoice promptly: As soon as a project or service is complete, send the invoice. Delays in billing lead to delays in payments.

• Set clear payment terms: Aim for shorter payment cycles (e.g., 15 days instead of 30 days).

• Offer incentives for early payments: You could offer a small discount (e.g., 2%) for customers who pay within a week.

• Automate invoicing and reminders: Use invoicing software to automatically send reminders when payments are overdue.

4. Control payables without damaging relationships

While it’s smart to speed up your receivables, sometimes delaying payables—such as bills or vendor payments—until the last possible day (without incurring penalties) can give your business some breathing room. 

This strategy helps you hold onto your cash longer, which can be crucial when cash flow is tight. However, it’s important to balance this approach to avoid damaging relationships with suppliers. 

This is where Hubpay steps in. By facilitating ultra-fast and reliable payments through tier 1 financial institutions, Hubpay ensures that your payments arrive quickly and securely, preventing any delays that could strain vendor relationships. With faster international transfers, you can confidently manage payables without risking the trust you've built with key partners.

5. Keep an eye on inventory

If you’re running a product-based business, inventory management is key. Too much inventory ties up cash that could be used elsewhere.

Review your inventory regularly and focus on optimizing stock levels to avoid over-ordering. Using tools like inventory management software can help you streamline this process and avoid tying up too much money in unsold goods.

6. Cut unnecessary costs

Conduct a regular review of your expenses. Where can you cut back without harming your business? Are you still paying for software you no longer use? Can you negotiate better rates with suppliers? Are you getting the best forex rates?

Every dirham saved adds up, and cost-cutting can often be done without impacting the quality of your products or services.

7. Consider short-term financing options

Sometimes, even with the best cash flow management, you might find yourself in a tight spot. This is where short-term financing options like lines of credit or small business loans can help.

A line of credit gives you flexible access to cash when you need it, without the pressure of a lump-sum loan. Just be sure to shop around for the best rates and terms.

Cash flow forecasting

One of the most effective ways to manage your cash flow is to forecast. A cash flow forecast estimates your future cash inflows and outflows, helping you plan for any potential shortfalls before they happen.

To create a cash flow forecast:

1. Start with your current cash balance.

2. Estimate future cash inflows (sales, investments, loans).

3. Estimate future cash outflows (bills, payroll, rent, etc.).

4. Calculate your net cash flow (cash inflows minus cash outflows).

Most businesses forecast cash flow for the next three to six months, but you can go further out if you prefer. Use historical data to guide your estimates, but remember that things like market conditions, seasonality, and customer behavior can impact your cash flow unpredictably.

Be prepared for seasonality

If your business experiences seasonal fluctuations, forecasting becomes even more important. During high-demand seasons, you might need extra cash for inventory or staffing. During slow periods, cash flow can dip, so it’s wise to have a plan in place.

For example, if you know business slows down in the summer, build up your cash reserves during the busy spring months. This way, you'll be prepared when things quiet down.

Conclusion

Cash flow management doesn’t need to be complicated. By keeping a close eye on your cash inflows and outflows, planning ahead, and making strategic decisions, you can keep your business financially healthy.

Hubpay can further streamline this process by ensuring fast, reliable corporate payments and helping you stay on top of your finances—especially if your business deals with cross border transactions.

In summary:

• Keep a cash reserve to cover unexpected expenses.

• Track your cash flow regularly to catch problems early.

• Speed up receivables and manage payables smartly.

• Optimize your inventory and cut unnecessary costs.

• Consider financing options for short-term cash flow gaps.

• Forecast your cash flow to plan for the future.

By implementing these strategies and leveraging tools like Hubpay, you'll be well on your way to maintaining a strong cash flow, ensuring that your business stays financially stable and ready to grow.