how to track cash flow in a small business

Tracking cash flow is essential for keeping your small business alive and growing. Even if you're profitable on paper, poor cash flow can cause missed bills, payroll issues, or even failure.

bbygirl123

Jun 23, 2025 - 11:23

Here’s a step-by-step guide to tracking and managing your cash flow effectively:

💡 What Is Cash Flow?

Cash flow = money coming in – money going out
It tracks how actual cash moves, not just income on paper (like in profit/loss).

✅ Step-by-Step: How to Track Cash Flow

🟢 1. Track All Incoming Cash

Include:

Customer payments (invoices paid)
Product sales
Loan disbursements
Capital injections
Grants or other income

📌 When to record: Only when money actually hits your bank.

🔴 2. Track All Outgoing Cash

Include:

Rent, utilities
Salaries or owner's draw
Inventory or raw materials
Loan repayments
Marketing and software subscriptions
Taxes, insurance

📌 Record when paid, not when the bill is issued.

📅 3. Use a Cash Flow Spreadsheet or Software

Month	Cash In	Cash Out	Net Cash Flow	Ending Balance
January	₹1,00,000	₹75,000	₹25,000	₹25,000
February	₹90,000	₹80,000	₹10,000	₹35,000

🎯 Tools you can use:

✅ Google Sheets/Excel (free templates available)
✅ QuickBooks, Zoho Books, Wave, FreshBooks (automated tracking)
✅ Apps like Float, Pulse, or LivePlan (for forecasting)

🧾 4. Forecast Your Cash Flow

Look 1–3 months ahead to anticipate shortfalls or surplus.
Include expected sales, known bills, payroll, seasonal costs.
Helps prevent cash crunches and plan for investments.

💼 5. Review Weekly or Monthly

Check cash inflow vs outflow regularly.
Identify patterns:
- Are payments coming in late?
- Which expenses are rising?
- Are you dipping into reserves?

📅 Set a recurring “Money Monday” or “Finance Friday” each week.

🚨 Watch for Red Flags

Negative cash flow for multiple months
Always struggling to pay bills or payroll
High receivables but low bank balance
Over-reliance on credit cards or debt to cover daily expenses

📊 Pro Tips to Improve Cash Flow

Problem	Fix
Late-paying clients	Set shorter payment terms, offer early-pay discounts
High fixed costs	Negotiate rent, switch vendors
Slow sales periods	Build a seasonal buffer or emergency fund
Over-ordering inventory	Switch to just-in-time inventory
Infrequent review	Schedule cash flow reviews weekly/monthly

📌 Quick Summary: How to Track Cash Flow

✅ List all cash in and out (real cash, not invoices)
✅ Use a spreadsheet or accounting tool
✅ Forecast upcoming months
✅ Review and adjust regularly
✅ Watch trends to avoid shortages