The Secret to Mastering Cash Flow for Small Business Owners

February 20, 2024
minutes to read
Alice Surdy
Table of Contents

As a small business owner, cash flow is essential to ensuring your business runs smoothly. But it's not just about having money in the bank. Understanding cash flow, how to calculate it, and how to improve it are crucial to the long-term success of your business. In this comprehensive guide, we'll share the secrets of cash flow management and provide expert tips on identifying and addressing cash flow issues in your small business. We'll also introduce you to Thriday's cash flow management tools, which can help you optimise your finances and take your business to the next level.

What is Cash Flow? 

Cash flow refers to the movement of cash in and out of your business. It's the net amount of money generated or used by a company during a specific period. There are three main types of cash flow:

  • Operating cash flow is the cash generated or used by a company's core operations. This includes revenue from sales and expenses like salaries, rent, and utilities. 
  • Investing cash flow is the cash used to invest in assets such as property, equipment, or stocks. 
  • Financing cash flow is used to finance activities like debt repayment or issuing stocks. 

While cash flow is related to profit, they are not the same. Profit is the difference between revenue and expenses, while cash flow is the actual movement of money in and out of your business. It's possible for a company to have positive profits but negative cash flow if it's not managing its finances correctly. 


How to Calculate Cash Flow 

Calculating cash flow is an essential part of managing your business finances. The basic formula for calculating cash flow is: 


Cash flow = Cash inflows - Cash outflows 


To calculate cash inflows, you must add all the money coming into your business, including sales revenue, loans, and investments. To calculate cash outflows, you'll need to add up all the money going out of your business, including expenses like rent, salaries, and utilities. 

It's important to note that cash flow can be positive or negative. Positive cash flow means that you have more money coming in than going out, while negative cash flow means the opposite. Negative cash flow can be a warning sign that your business is spending more than it's earning, which can lead to financial problems down the line. 

Accurate bookkeeping is crucial for calculating cash flow correctly. Keeping track of all your income and expenses and organising them into categories will help you calculate your cash flow accurately. 

Now that you know how to calculate cash flow, let's move on to the next section, which will cover how to use a cash flow statement. 

Thriday cash flow predictor


Using a Cash Flow Statement 

A cash flow statement is a financial statement that shows the inflows and outflows of cash in a business over a specific period. It's an essential tool for understanding the cash position of your business and identifying potential cash flow issues. 

The cash flow statement is broken down into three sections: operating activities, investing activities, and financing activities. By analysing your cash flow statement, you can identify patterns and trends in your business's cash flow and make informed decisions about managing your finances. For example, if your business consistently has negative cash flow, you may need to reevaluate your expenses and find ways to reduce them. 

Thriday cash flow statement


Creating a cash flow statement can be time-consuming and complicated unless you use a tool like Thriday. Thriday is an automated accounting software that can categorise your transactions to the correct section, and you can generate reports to review the numbers in detail. 

In the next section, we'll discuss creating a cash flow forecast, which can help you plan for the future and anticipate potential cash flow issues. 


How to Create a Cash Flow Forecast 

A cash flow forecast calculates your business's future cash inflows and outflows. It's an essential tool for planning and budgeting and can help you anticipate potential cash flow issues before they become a problem. 

To create a cash flow forecast, you must estimate your future cash inflows and outflows for a specific period, usually a month or a quarter. Start by evaluating your expected cash inflows, including revenue from sales, loans, and investments. Next, estimate your expected cash outflows, including expenses like rent, salaries, and utilities. 

Once you have estimated your cash inflows and outflows, you can calculate your projected cash flow for the period. If your projected cash flow is negative, you should look to reduce your costs or for ways to increase your revenue to avoid cash flow problems. 

Thriday has an in-built cash flow predictor which tracks your past performance to predict your future performance. The cash flow predictor works automatically based on the income and expenses generated on your Thriday account.

In the next section, we'll discuss how to identify opportunities to improve your cash flow, which can help you avoid cash flow issues and increase your profitability. 


How to Improve Your Cash Flow 

One way to improve your cash flow is to increase your revenue. You can do this by adjusting your prices, launching new products or services, or finding new markets to sell to. You can also improve your cash flow by reducing your expenses. This can be done by negotiating with suppliers, reducing inventory levels, or finding cost-effective ways to operate your business. 

Another way to improve your cash flow is to manage your working capital effectively. Working capital is the difference between your current assets and liabilities, representing the cash you have available to run your business. By effectively managing your working capital, you can ensure you have enough money to cover your expenses and invest in growth opportunities. 

In the next section, we'll discuss the benefits of free cash flow.


The Benefits of Free Cash Flow 

Free cash flow is the amount of cash your business generates after deducting your capital expenditures from your operating cash flow. It represents the cash your business has available to invest in growth opportunities, pay dividends, or pay down debt. 

Tracking your free cash flow is essential for managing your business finances effectively. It can help you make informed decisions about investing in growth opportunities that generate a positive return on investment over time. 

Free cash flow is also an important metric for investors and lenders. It demonstrates your business's ability to generate cash and pay down debt, which can help you attract funding and improve your creditworthiness. 

By tracking your free cash flow, you can identify opportunities to improve your business finances and make informed decisions about allocating your resources. 

In the next section, we'll discuss the Cash Flow Quadrant, which can help you understand the different types of cash flow and how they relate to your business. 


The Cash Flow Quadrant 

The Cash Flow Quadrant is a concept introduced by Robert Kiyosaki in his book "Rich Dad Poor Dad." The Cash Flow Quadrant categorises different types of cash flow into four quadrants: Employee, Self-Employed, Business Owner, and Investor. 

In the Employee quadrant, people earn money by working for someone else. They have a fixed salary or hourly wage and are paid for their time and effort. 

In the Self-Employed quadrant, people earn money by working for themselves. They may be professionals such as doctors, lawyers, or consultants who trade their time and expertise for money. 

In the Business Owner quadrant, people earn money by owning a business. They have systems and employees that generate cash flow, allowing them to make money without working. 

In the Investor quadrant, people earn money by investing in assets that generate cash flow. They may invest in stocks, real estate, or other income-producing assets. 

Rich Dad Poor Dad


Understanding the Cash Flow Quadrant can help you identify the type of cash flow you're currently generating and how you can transition to generating cash flow from other quadrants. For example, if you're in the Employee or Self-Employed quadrant, you may want to start a business or invest in income-producing assets to generate passive income. 

In the next section, we'll discuss the discounted cash flow method, a valuable tool for evaluating investment opportunities. 


The Discounted Cash Flow Method 

The discounted cash flow (DCF) method is a valuation method used to estimate the value of an investment based on its future cash flow. It's a widely used technique in finance and investment analysis, and it can be applied to a wide range of assets, including stocks, bonds, and real estate. 

The DCF method involves estimating the future cash flows the investment is expected to generate and discounting them back to their present value using a discount rate that reflects the risk associated with the investment. The result is the estimated intrinsic value of the investment. 

To use the DCF method, you'll need to estimate the investment's future cash flows and determine an appropriate discount rate. The cash flows are typically calculated using a cash flow forecast, and the discount rate is based on the risk associated with the investment. 

The DCF method is a powerful tool for evaluating investment opportunities because it considers the time value of money and the risk associated with the investment. By estimating the intrinsic value of an investment, you can make informed decisions about whether to buy, hold, or sell the investment. 

In the final section, we'll discuss the benefits of using Thriday to identify and address cash flow issues in your small business. 


Benefits of Using Thriday to Improve Your Cash Flow 

Managing cash flow is critical for any small business, and that's where Thriday comes in. Thriday is a next-generation accounting platform designed to help small business owners manage their cash flow and finances more efficiently. 

Thriday offers a range of features that can help you identify and address cash flow issues in your business. Some of the key benefits of using Thriday include: 

  • Real-time cash flow tracking: Thriday allows you to track your cash flow in real-time, so you always know how much money is coming in and going out of your business
  • Automated bookkeeping: Thriday automates your bookkeeping, so you don't have to spend hours manually reconciling accounts and categorising transactions. 
  • Cash flow forecasting: Thriday can help you create accurate cash flow forecasts, so you can anticipate cash shortages and plan accordingly. 
  • Expense management: Thriday allows you to track and manage your business expenses to identify areas where you can cut costs and claim tax deductions. 
  • BAS preparation: Thriday automates tax preparation by providing you with organised financial statements and reports that you can easily use to lodge your BAS to the ATO


Cash Flow FAQs

What is cash flow?

Cash flow is the amount of money entering and going out of a business. It represents the net change in a company's cash and cash equivalents over a specific period of time.

Why is cash flow important for a business?

Cash flow is vital for a business because it ensures that the company has enough cash on hand to meet its financial obligations, such as paying bills and payroll and investing in growth opportunities. It also helps businesses identify potential cash flow issues and plan accordingly.

How do you calculate cash flow?

Cash flow can be calculated by subtracting a company's cash outflows (expenses) from its cash inflows (revenues) over a given period of time. Positive cash flow means that a company has more money coming in than going out, while negative cash flow indicates that a company has more money going out than coming in.

What are some common causes of cash flow problems?

Some common causes of cash flow problems include slow-paying customers, high overhead expenses, unexpected expenses or emergencies, and insufficient sales or revenue.

How can a business improve its cash flow?

A business can improve its cash flow by implementing strategies such as negotiating better payment terms with vendors and suppliers, incentivizing customers to pay on time, reducing unnecessary expenses, and increasing sales and revenue through marketing and other growth initiatives.

By using Thriday to manage your cash flow, you can save time and money while gaining valuable insights into your business finances. Plus, Thriday's affordable pricing and easy-to-use platform make it an excellent choice for small businesses of all sizes. 


Cash flow is the lifeblood of any small business, and it's essential to manage it effectively to ensure your business's long-term success. By understanding the basics of cash flow, creating a cash flow statement, and using cash flow forecasting, you can identify opportunities to improve your cash flow and increase profitability. Join Thriday for free today to improve your cash flow and take your small business to the next level.

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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