Cash Flow Management is a term that is bandied about for the successful management of a business.  How well a business manages its cash flow can determine whether or not it will survive. 

Cash flow management refers to the timing of cash inflows and outflows.

The reason cash flow management is so critical to a business is that there is a difference between being profitable and being solvent. Being profitable does not necessarily mean that a business is always solvent. Solvent means being able to pay your bills when they are due. This is probably the most important factor to a growing or seasonal business where there are large purchases before sales. The key is to figure out when these demands will occur. This is where your accountant can help you.

 A good starting point in preparing a cash flow statement is for a business to create a business plan. A business plan identifies the timing of sales, expenses and necessary equipment purchases. It should identify the starting and ending cash positions for each month. A business operator can start to plan by using last year's numbers. The next step is to identify those amounts that he or she believes will change from last year.

 An example of this is the tourism industry. If the industry had a very slow start due to poor weather, in the prior year, this is not likely to occur again.  A hotel operator might expect the current year to return to a more normal level.

Prepare a Business Plan

A business plan should be flexible enough to allow for changes in the economy. A flexible plan should identify any trouble before it occurs and allow the business operator to plan accordingly. Many chartered accountants have brochures that can aid a business in developing a plan.

Another method of managing cash flow is the management of accounts receivable. When a business starts up, most business owners are concerned with ensuring that the bills are paid on time. This is understandable as a new business needs to establish good relations with its various suppliers.