by Matt Mahan

Created on: July 06, 2008

As a former small business owner, I can tell you from experience that managing cash flow is a lot harder than people think. No matter what type of business you have, there are going to be slow times and hectic times. Hopefully, more hectic times than slow. The key to managing your cash flow lies in one word: discipline. A business owner that has diehard discipline is going to be able to manage their cash flow easier.

Cash flow is defined as money coming in versus money going out, plain and simple. When more money comes in, that is a good thing, it equals a positive cash flow. If there is more money going out, or spent, that is a negative cash flow, and bad. Your cash flow can fluctuate from day to day as busier or slower days ensue.

The ability to manage your cash flow will take you a major step towards success for your business. Many businesses fail due to this very fact, people are not used to living on cash flow. As a business owner, here is where the discipline comes in, you come last. That is right, you buy the supplies, put in the long hours, pull your hair out and lose sleep, but when it comes to the money, you come last.

Most people go to work everyday and receive a paycheck periodically, weekly, bi-weekly or bi-monthly. As a business owner, there are many things that come before you on the money ladder:

Lease / Mortgage
Overhead (utilities, taxes, and fees)
Supplies
Employees (if you have them)
Savings
Business Owner

If the business is in a slow period, the importance of discipline increases. Making sure all the bills get paid first, will ensure that you have a building with utilities to go to every workday. Same goes with your supplies, employees, etcetera. If you have no other source of income, then your home bills most come from your daily money intake.

Most businesses follow a "cycle" in nature, meaning the busy and slow times. One other aspect of managing cash flow is shifting money from your busy times to your slow ones. It is an attempt to "flatten out" the natural waves in business. When you as a business owner can "pay" a savings account in the busiest of times, you will be in essence, be improving your cash flow in your slowest times.

Effectively managing cash flow as a small business owner is the single most difficult thing to learn and do. The theory goes against everything that is inbred into a person's psyche. It is not taught at any business school, nor do you find this information at a library. The quicker you teach yourself this very important business tool, the better your chance of staying in business. Small business owners who do not learn how to manage their cash flow properly, usually find themselves working for someone else.

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