Cash Flow 101: Simple Systems Every Business Needs
Managing cash flow is one of the most important — and often misunderstood — parts of running a successful business. Whether you’re a startup or scaling up, how you manage the money flowing in and out of your business can determine whether you thrive, survive, or stall.
“Cash flow is the heartbeat of your business,” says Itika Watkins, CEO of Detroit-based Professional Bookkeepers and an experienced financial educator. “You can have a great product or service, but if you don’t manage your cash, you won’t last long.”
Here, Watkins shares practical strategies for staying in the black and building financial systems that work.
1. Know the Difference Between Cash Flow and Profit
Just because your business is profitable doesn’t mean you have money in the bank.
“One of the biggest mistakes business owners make is confusing profit with cash flow,” Watkins says. “You might be showing a profit on paper, but if your customers haven’t paid you yet, you don’t actually have that money to spend.”
What to do: Review your cash flow statement separately from your income statement. Profit tells you what you earned, while cash flow shows what’s available to use.
2. Set Up a Cash Flow Forecast
A cash flow forecast helps you anticipate shortfalls before they happen and make smarter decisions about when to spend, save, or seek financing.
“Every business should have a cash flow forecast, even if it’s simple,” Watkins says. “You don’t need fancy software, you just need to know what’s coming in and going out over the next 30 to 90 days.”
What to do:
- Project expected income by week or month.
- List all known upcoming expenses (payroll, rent, vendors, taxes).
- Look for gaps between inflow and outflow so you can plan ahead.
3. Get Clear on Your Operating Costs
According to Watkins, many entrepreneurs are unaware of the actual monthly costs of running their business, which creates trouble.
“You have to know your bare minimum,” she says. “What do you need to bring in just to keep the lights on? That number should be burned into your brain.”
What to do:
- Calculate your fixed monthly costs (rent, salaries, software, utilities).
- Add average variable expenses (inventory, marketing, shipping).
- Use that baseline to determine your minimum monthly revenue target.
4. Build a Separate Emergency Fund for Your Business
Personal finance experts recommend keeping 3–6 months of expenses in savings, and Watkins says the same principle applies to your business.
“I tell clients to treat their business like a person. It needs its own emergency savings,” she says. “Because guess what? There will be slow months. If you don’t plan for that, you’ll feel the pressure immediately.”
What to do: Start by saving one month of essential expenses. Build up gradually over time as your revenue grows.
5. Get Paid Faster
One of the quickest ways to improve cash flow is to shorten the time between doing the work and getting paid.
“I always say: invoice immediately. Don’t wait a week. Don’t wait until you ‘have time,’” Watkins stresses. “And make sure your invoice terms are clear — Net 15 or Net 30 — so your clients know what’s expected.”
What to do:
- Automate your invoicing process if possible.
- Include clear payment terms and late fees.
- Follow up consistently on overdue invoices.
6. Don’t Overlook Timing
Even businesses with strong annual revenue can hit cash flow crunches if income and expenses don’t align month to month.
“I had a client who was profitable but always broke in February and March,” Watkins recalls. “Why? Because their biggest bills hit early in the year, and sales didn’t pick up until spring. We fixed it by adjusting payment cycles and negotiating with vendors.”
What to do: Review your cash flow by month. Identify high-expense periods and plan accordingly — whether through savings, prepayment plans, or temporary financing.
7. Review Cash Flow Monthly (at Minimum)
If you only check your numbers when it’s time to apply for a loan or file taxes, you’re doing your business a disservice.
“Monthly review isn’t optional,” Watkins says. “Cash flow is dynamic. Things change all the time. One late payment or surprise expense can throw everything off.”
What to do:
- Reconcile your bank accounts and compare actuals to forecasts.
- Identify where cash leaks are happening. Are all of your expenses justified? For example, Watkins notes that many businesses incur monthly tech expenses that aren’t utilized or are underutilized.
- Use insights to adjust your pricing, payment terms, or spending.
8. Work With a Bookkeeper or Financial Pro
Watkins emphasizes that managing cash flow doesn’t mean doing everything yourself. In fact, getting help from a professional can save you money and stress in the long run.
“Bookkeepers can help you set up systems, spot patterns, and avoid costly mistakes,” she says. “Don’t wait until you’re in trouble. Be proactive.”
MWF Can Help
Michigan Women Forward offers more than loans. Through personalized technical assistance, trusted referral partners like Professional Bookkeepers, and ongoing financial education, we help entrepreneurs manage their money with confidence.
