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Seven Steps to Implementing Cashflow Management in Your Business

In my last article, “Some Bad, and Some Good, Advice on Cash Flow Management,” I told you I’d give you the details for the seven steps to implement a sound cash management program.

I mentioned that people sometimes want to move too quickly. Generally, their problem isn’t what they think it is (see my article “Keep Digging. The Problem with Your Cash Flow Isn't What You Think It Is.”)

I advise everyone to take a systematic approach.

In this article I’ll go into more detail on how to implement a solid cash management program in any company. Here are the seven steps:

  1. Put your bookkeeping in order.
  2. Analyze your financial reports.
  3. Find and implement quick fixes.
  4. Implement bigger projects. 
  5. Create a cash flow forecast.
  6. Use cash management tools.
  7. Monitor a cash management dashboard.

Step 1: Put your bookkeeping in order. Create a solid foundation.

Most businesses without a professional controller will have significant errors in bookkeeping.

I’ve spoken with other professionals who agree that almost every company that is in trouble, or doing well but not able to grow, has significant challenges with their bookkeeping.

Common problems I’ve found and reported generally are:

  • Entries incorrect
  • Bank accounts not reconciled
  • Petty cash mishandled
  • Books not closed/finished
  • Chart of accounts set up for doing taxes instead of for day to day operations
  • Clients not invoiced
  • Bills not entered
  • Reports not useful for running the business

Here are three simple rules to fix your books:

  1. Update all bookkeeping records each week:
  • Bank accounts.
  • Credit cards.
  • Lines of credit.
  • Payments received.
  • Every record you keep. Everything.
  1. Structure your chart of accounts and record keeping to track:
  • Profits for each line of business
  • Revenue, and if possible, profits for every client
  • Large expenses.  Any expense over 1% of revenue should have its own account
  1. Review your books with a successful associate and adjust. 
  • Review your business and real-world influences.
  • Look for honesty, be careful that you don’t just hear what you want to hear.

Step 2: Analyze your financial reports. Understand what impacts your cash flow.

Your cash flow forecast is a combination of the cash scheduled to come in, the cash and credit you currently  have, and the cash scheduled to go out of your company.

There is no single report that I am aware of that addresses every aspect of cashflow. To start, look at the separate standard reports using cash-basis accounting to get a feel for each of your company’s cash flow components.

Income Statement – Make this a 12-month report with one column per month. This will tell you:

  • Ups and downs of cash coming in from sales
  • Your fixed costs that change very little month to month
  • Your costs that vary a lot based on how much you sell

If you track income and costs by client, run a filter so you can see basic client profitability as well.

Balance Sheet – Make this a 12-month report with one column per month. This will tell you:

  • If your bank balances are going up or down
  • How much debt you’re building up or paying off
  • Increasing distributions to owners.

Compare Income Statement to Balance Sheet – Do your bank accounts grow with more money coming in? Does your debt go down? If not, where is it going? Look for balance sheet asset accounts that go up when sales are up.

Accounts Receivable (A/R) – Not every business has receivables, but if you do, look at who owes you money, how much do they owe, and how long it been owed.

Accounts Payable (A/P) – Again, not every business has payables, but if you do, this is an area that can help you manage your cash by taking some time to pay your bills. Know who you owe, how much you owe, and when the bill is due.

Special Note- Statement of Cash Flows. This report is complicated and confusing for most people. If you can figure it out, it will tell you where your cash is coming from and going to.

Important: To understand cash flow and manage your cash, your reports must be cash basis reports, not accrual basis reports. It makes sense- use cash basis reports for cash management.

Step 3: Find and implement quick fixes. This builds momentum.

As you update your bookkeeping and run your reports, you will start seeing the changes you can make to your businesses.  These are changes that will increase the cash coming in or change where and when cash goes out of your business. Here are examples of quick changes:

  • Make phone calls to the clients that owe you money
  • Wait for the best time to pay your bills, even be a little late if you need to
  • Arrange payment plans for big bills
  • Reduce expense items as you can, some are easier than others
  • Work with your team (employees, clients, vendors, etc.) so they are part of these quick fixes
  • Look at your least profitable clients. Give them an opportunity to become profitable. Fire them if needed.
  • Kill your least profitable products, unless they are bundled with other very profitable products

Step 4: Implement bigger projects.  Create a significant and lasting impact.

While fixing your bookkeeping and looking at your reports, you will find opportunities for significant changes that will take time to implement. Here are some possibilities:

  • Shop around for new key suppliers that will improve price and/or terms
  • Identify the clients that generate 80% of your profit, identify why they are so profitable, and replicate that success
  • Reward your employees on profits or gross margin instead of on sales
  • Re-price or eliminate products that have low margins or force-bundle them with other products with high margins
  • Sell consignment inventory. Sell virtual products. Get commissions on referrals. All are pure profit and require no cash outlay.

The list is endless. Opportunities vary by business and industry. Take them as you can. Start with the ones that will make the biggest impact with the least amount of effort. Keep going from there.

Step 5: Create a cash flow forecast, your basic cash management tool.

A cash flow forecast will help you estimate when money is coming in and scheduled to go out. A forecast could be a paper and pencil, or detailed spreadsheets. Here’s what is important:

  • Use a format that you can live with for a long time. Anything too complicated or time consuming will eventually stop being used.
  • A weekly update. Longer than weekly? You will lose track and it will take a long time to gather all the information for updates. When cash management is a critical issue, then it could be updated daily. Money coming in and commitments made by clients are especially important to track.
  • Your forecast should track by week and go out at least 13 weeks. It should be extremely accurate for 2 weeks out, reasonably accurate for weeks 3-4, good estimates for weeks 5-9, and your best guess for weeks 10-13. The reason you go that far out is so you can schedule payments with people you owe money.
  • The key rows of the forecast are:


  1. Money coming in – regularly scheduled, receivables
  2. Money going out – regularly scheduled, payables
  3. Don’t forget quarterly, semi-annual, and annual expenses

Insider Tip: Be careful of cash forecast tools that are really budgets. They can be helpful to set expectations but are generally monthly and not true predictors of weekly cash flow and cash position.

Step 6: Use cash management tools that automate and simplify your cash management.

Cash management tools simplify your cash management, making it faster and easier to do. Here are some options:

  • A cash management spreadsheet that automates updates for A/R, A/P, regular expenses, and income.
  • Accounts receivable software that works with your accounting software
  • Payment tools that either work with your bank account or with your accounting software.
  • Credit cards and bank lines of credit when used properly
  • Inventory management tools

Here’s a warning… don’t mistake cash flow with cash management. Cash flow is the result of what you do to manage your cash. Cash Management is actively making decisions on what to do with your cash and when to do it, and then implementing your decisions with specific business activities.

Most cash software tools are for better cash forecasting, not cash management. Use them if you need a better cash forecast tool.

Step 7: Monitor a cash management dashboard to keep score.

Decide what your goals and target numbers are and build a dashboard to keep track of them. Every business will have different goals and metrics for cash management depending on:


  • The business size – revenue, people, capital investments, etc.
  • Target profit margins and expenses
  • Pricing models
  • Policy decisions on when to pay vendors and giving credit to clients
  • How much free cash you currently have
  • How much free cash you forecast for the future


Here are some good metrics that every business should know from a trend perspective.



  • Bank account balances
  • Credit line and debt balances
  • A/R balances and aging
  • A/P balances and aging
  • Profit margin percentages – total and by product line
  • Inventory balances and aging
  • Key variable expense items as a % of sales
  • Overtime as a % of wages



Look at the trends. Are they going up, down, or staying the same, and what’s the right direction for your company? Are they at or near your targets?


Remember: a good direction for one company can be a bad direction for another company for any measurement. Here’s a good example:

Most people think that big bank balances are better than smaller ones, and generally I agree. At the same time, what if the cash is more useful outside of the bank than inside? Two examples:

  • A key supplier will give you a 2% discount if you pay within 10 days. That is a much better return on your cash so should pay early whenever you can.
  • You usually buy a 1-month supply of widgets, but you get a 5% discount if you buy a 2-month supply. Again, a much better return on your cash than sitting in the bank. Buy a 2-month supply when you can if your total cash allows you to.


You should review your Cash Management Dashboard at least weekly. The idea is to get a sense if what you are trying to change is working. If not, make changes sooner than later to put things on track.


Does it sound like a lot? Take one step at a time.

There are seven (7) steps outlined, so take one at a time. Start with your basic bookkeeping and go from there. Steps 3-7 don’t have to be sequential and are often implemented at the same time.

I’d love to hear any ideas you have and experiences you’ve had with implementing cash management systems.

Is there a cash management topic you’d like to learn about? Contact me at [email protected] to introduce yourself, share ideas, or ask me questions about managing your businesses cash.

David Safeer helps businesses implement cash management systems that create business breakthroughs. He founded The Cash Management Project in November 2018, to help businesses manage and maximize their cash resources.  David writes, teaches, and works with diverse companies around the world.

Thinking globally, one business at a time.

Copyright © 2019-2020 David Safeer International


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