How Small Businesses Can Analyze Cash Inflows & Outflows?

How Small Businesses Can Analyze Cash Inflows & Outflows?


Once that first year comes to a conclusion, it’s wise for business owners to take a step back from the routine aspects of running the company and look at the bigger picture. This will allow you to see where the company has been in the past year, how it’s grown, where it’s stumbled, while also providing you with the data necessary to make projections and guide the business towards these forecast goals.

One of the best ways to step back and take a big-picture view of your small business is by examining the company’s cash inflows and outflows. You’re going to need money to purchase inventory, pay the bills and employees. Plus, cash-flow issues can be some of the first warnings signs of bigger problems at bay that may also need to be addressed, such as an imbalance in costs and prices, an inefficient supply chain, or even poor worker training. Ultimately, insufficient working capital can be fatal for any small business.

How do you calculate your small business cash flows?

A simple starting point is to establish a recordkeeping system if you don’t already have one. For many small business owners running self-employed operations or ones with just a few employees, it might not have even occurred to them to set up this crucial information.

There’s a wide range of accounting software services available for companies of all sizes, including cloud-based services that typically have robust cybersecurity features and eliminate the need for in-house data storage. Whether it’s QuickBooks or simply Excel, NerdWallet recommended creating a spreadsheet with the 12 months of the year in a top row and a running list of inflows and outflows in the first column on the left side.

Under the cash inflows section, create an entry for the starting balance at the beginning of the month and another entry for the amount of total income received at the end of the month. Then either add them together or insert a simple formula doing the work for you.

Below the outflow entry, insert a row for every single expense along with the monetary cost of each item. This will include things like rent, payroll, inventory purchases, supplies, utilities and any other expense needed for normal operations. Total up these costs once you’ve detailed them all.

Then subtract the total expenses from the total assets. This sum is the net profit and remaining cash flow, and gets inserted as the starting balance moving into the next month.

The larger the number, the better your cash flow, which gives you greater flexibility in instituting growth strategies. If this number is negative, it could be indicative of a larger operational problem within your current business model. However, by drilling down into the granular correlations between these numbers, you can potentially identify kinks in the workflow, inefficiencies in operations, or unrealized cost-saving opportunities.

Analyze your new stash of data

The information buried within the numbers can reveal a lot about the inner workings of your small business. If there’s an imbalance in your inflows and outflows, it may be due to several issues. As noted in The World, these inefficiencies can include, but are not limited to:

  • Overstocked inventory
  • Inaccurately priced goods and services
  • Delayed account receivables
  • Employee theft

Having to face any one of these individual threats to operational efficiency can be devastating, and a combination of them may even lead to business failure. Thankfully, with a review of your cash flows, you can identify where these obstacles to growth are and implement the proper solutions.

Overstocked inventory

It might be tempting to splurge all the surplus revenue on ensuring inventory is full stocked. However, while a packed warehouse might eventually translate to dollars down the road, it’s not money in the bank to cover payroll. As distribution centers become faster and more efficient, now’s a good time to find ways to streamline your supply chain and trim delivery times.

Accelerate receivables

One way to overcome an obstacle to successfully balancing cash flows is by tracking the timeline of your services rendered or goods sold against when they are paid. This lets owners discern the average time period for collecting payments and invoices. If customers or clients are taking weeks, or even months, to close their open tabs with your company, you might want to consider establishing a more well-defined collection and credit policy. A generous 60- to 90-day window for payments or a line of credit plan can ultimately accelerate your cash inflows, which gives you a better ability to gauge your working capital.

Review your prices

With this new financial data at hand, look back at where your costs are coming from. Your incoming revenue has to cover the expenses of any inventory, as well as labor, rent, and incidentals. During the first year, you were working with estimates and projections on how much these would cost the company. However, you might find in the data that what you’re charging for your goods or services isn’t actually enough to cover all these expenses. This gives you an opportunity to find ways to cut overhead or if need be, move your prices to align with your costs.

Consider alternative lending

There are times, whether due to external factors beyond your control, such as a downturn in the economy or a major market disruption, that either puts a plug on the inflows or drives up the outflows. With a small business loan from an alternative lender, you can find the funding your small business needs to balance your cash inflows and outflows.