Today I’m taking one more detour to talk about cash.
In two weeks, I’m kicking off the next cohort, where we teach the core financial systems every business owner needs to lead confidently and make better strategic decisions.
If you’ve been meaning to get a better grip on your numbers, this is for you.
You can join us here (and get $100 off using that link).
But if you’re still on the fence, I’m running a free lightning session/webinar next week as a preview: 5 Cash Flow Killers Draining Your Bank (And How To Fix It)
We’ll walk through how most owners misread their cash position and how to fix it with simple tools you can implement immediately.
Today’s article is a primer for that session.
These are the 10 cash flow truths I see confuse, frustrate, and surprise business owners over and over again.
Let’s fix that.
10 CASH FLOW TRUTHS THAT WILL TRANSFORM A BUSINESS (INTERNALIZE THESE)
I’ve worked with owners doing $2M, $10M, even $50M in revenue… and when I ask, “How much usable cash does your business actually generate each year?” I usually get one of three answers:
- “I don’t know. Not good.”
- “I think we’re doing okay? Our CPA said we owed a lot in taxes.”
- [checks bank account] “I mean, we’ve got money in there…”
I cringe at all of these, but that last one is the killer.
Because most owners are making critical financial decisions based on their bank balance and that number is lying to you.
I’ve seen marriages strain and payrolls missed, not because the business was unprofitable, but because the owner didn’t understand how cash actually works.
We think profit is cash.
We think the bank balance is a green light.
We think growth means more money in our pocket.
And when those assumptions break down, stress builds up.
But when do I see businesses really turn the corner? When they start to internalize these cash flow lessons.
Let’s help you get there faster.
1. PROFITS AREN’T CASH
Profit is theory. Cash is reality.
Especially with accrual accounting, your Income Statement can say you’re doing great even as you run out of money.
Instead of profits, track Operating Cash Flow and Free Cash Flow.
The goal with each number is to have positive operating and free cash flow over a longer time horizon.
They show you what’s actually flowing into and out of the business.
If your operating cash flow or free cash flow is negative, that means you’re using cash from other areas:
- Previous cash balance
- Generating cash from financing activities
- Generating cash from investing activities
The Statement of Cash Flows is an underutilized statement that does a great job of showing how cash was used in a business.
2. YOUR BANK BALANCE DOESN’T REFLECT YOUR OBLIGATIONS
That bank balance you see? It doesn’t include:
- Checks you already cut
- Bills you already committed to
- Upcoming tax payments or debt service
Instead of looking at your bank balance, create weekly reporting that shows:
- Bank Trial Balance (accounting balance that includes already cut checks)
- Accounts Receivable Balance & Aging
- Accounts Payable Balance & Aging
- Known-but-not-booked liabilities (debt obligations, recurring expenses, etc)
13-week cash flow forecasts aren’t just for turnarounds. They help anyone see the boogeyman before he shows up.
Anyone I’ve implemented this with has been blown away by what they learn about their numbers.
To learn more about the 13-week cash flow forecast, read this article.
3. CASH RESERVES ARE YOUR LIFELINE
Cash reserves aren’t a nice-to-have. They’re the buffer between a downturn and a panic spiral.
Use a few rough benchmarks:
- 2–3 months of payroll
- Off-season burn rate
- Known CapEx timelines
This isn’t about hoarding cash. It’s about buying time when life (or the market) throws a punch. Businesses with reserves make better decisions under pressure. Period.
Read this article from the CashOS series to determine how much you should keep on hand.
4. INVOICING QUICKLY INCREASES YOUR CHANCE TO GET PAID
Slow invoices = slow payments. Obvious, but so many businesses are terrible at this.
Delay invoicing just a few weeks and your customer forgets the details, questions the bill, and punts it to AP.
Now you’re chasing it.
Get these three processes in place:
- Invoice as soon as you can
- Follow up at 30/60/90 days
- Assign one person to manage receivables like their job depends on it (because it does)
The right system and a default to proactiveness will drastically increase the likelihood you get paid timely.
5. YOU DON’T HAVE TO PAY THE BILL RIGHT WHEN YOU GET IT
Bills have due dates for a reason and waiting until the due date is not being unethical. It’s being intentional.
Most vendors want predictability more than immediacy.
Set clear expectations. Follow their terms. Use your cash cycle wisely.
For companies that are re-billing vendor invoices, if you bill customers before you pay vendors, you win the float game. “Pay-when-paid” isn’t just a clause. It’s a mindset.
6. INVENTORY IS CASH IN DISGUISE
Every item on the shelf is a dollar you can’t spend elsewhere.
Too much inventory = cash trapped.
Too little = lost sales.
Treat your inventory like it’s cash. Inventory management is not a set-it-and-forget-it thing. It’s an always-be-managing thing.
Use demand planning. Review aging inventory monthly. Think like an investor, because that’s what you are.
7. GROWTH EATS CASH
Growth sounds great, until you’re scaling a business that bleeds money while you wait to get paid.
Revenue up. Stress way up.
A client of mine was struggling with cash and couldn’t figure out why his cash balances were so low consistently. As we looked into how to grow, we had to figure out how to get more cash in the business.
There were 2 main problems:
- It took a long time for ordered inventory to get to the warehouse (185 days)
- He had to pay for that inventory up front
By changing suppliers and getting better terms, we were able to cut their cash conversion cycle from 230 days to 45. When you stepped back, it decreased their cash outlay by 3.5 times!
We’d considered loans, but that one move freed up more cash than any loan ever could.
Want to grow fast? Plan for the cash hit, but also look at your cash conversion cycle (read more about it here).
Then grow in rhythm, not in chaos.
8. DON’T FORGET TAXES
Too many owners act surprised in April, as if taxes weren’t an every year thing.
Tax isn’t optional and it’s not just a once-a-year thing.
It should be part of your monthly and quarterly planning.
You don’t need tax tricks. You need tax planning.
And you need a CPA who understands your business, not just files your return.
A few things you can do to manage your taxes:
- Find the RIGHT CPA for your business; don’t just go with a friend. Go with one who understands your business.
- Meet quarterly (or semi-annually) with your CPA to plan your taxes and tax payments.
- Before making big investments or changes, talk to your CPA about the tax implications. It should be a part of your calculation, but never the only calculation.
Taxes shouldn’t run the business. Profits and cash run the business. But taxes do impact it and need the proper attention.
9. USE LEVERAGE, BUT SPARINGLY
Debt is not evil. It’s a tool.
Used well, it can smooth cash flow, accelerate returns, or unlock opportunities.
But it comes with tradeoffs:
- Stress
- Reduced flexibility
- Fixed payments in a variable world
Make debt decisions when you’re calm, not when you’re desperate.
When managing leverage, consider:
- Establish clear criteria for when and how to use debt. Focus on using debt to fund growth, reinvestment, and new initiatives.
- Regularly review leverage ratios and cost of debt in conjunction with cash flow.
- Build more than one banking relationship and speak openly with them. This will allow you to better understand the landscape and have options when you need help. Better to negotiate with a relationship than without one.
10. FLEXIBILITY IS YOUR FRIEND
Cash, credit lines, backup suppliers, and cross-trained staff are your pressure release valves.
They buy you time. Time buys you options.
Options give you control.
And control?
That’s the real power behind cash flow.
Banks love to give you money when you don’t need it but seize it up when you do. It’s just true!
By preparing and building flexibility into your business, you reduce stress and create an atmosphere for clarity in decision making.
This builds resilience and resilience is key to keeping cash flowing.
CASH FLOW CLARITY STARTS WITH ONE MOVE
If a few of these truths hit too close to home, don’t panic. You’re not behind. This is normal. But we don’t want to be normal (we want to be PROFITABLE) and ultimately, you are responsible. So you need to take action.
The first move?
Come to the lightning session.
We’ll turn these truths into real-world systems you can use.
You’ll walk away with:
- A simple weekly cash report template
- A cheat sheet for your biggest cash flow levers
- A better way to run your business (not your gut)
Let’s stop being surprised by cash.
Let’s start leading with it.
