Cash flow is what separates businesses that grow from those that continue floating around the same revenue for years. Without it, you can’t pay employees, cover bills, or invest in growth. Even businesses that look profitable on paper can fail if they don’t have enough money moving in and out at the right times.
The good news? Cash flow can be managed, planned, and improved. With the right systems, tools, and strategies, you can stop worrying about money and focus on running your business.
This guide will teach you the following about cash flow and what solutions exist:
- What cash flow really means (and how it’s different from profit).
- How to understand a cash flow statement.
- The difference between direct vs indirect cash flow methods.
- Why businesses struggle with negative cash flow.
- Practical steps to increase working capital.
- How a 13-week cash flow forecast works.
- Lending and finance options to bridge gaps.
- How Walden Solutions Group (WSG) helps small and mid-sized businesses get control of cash flow.
By the end, you’ll know exactly how to turn your cash flow problems into solutions.
What is Business Cash Flow?
Cash flow is simply the movement of money in and out of your business.
- Cash inflows: customer payments, sales, loans, investments.
- Cash outflows: payroll, rent, supplies, loan payments, taxes.
If more is coming in than going out → you have positive cash flow.
If more is going out than coming in → you have negative cash flow.
Why it matters:
- You can be profitable but still run out of cash.
- You can grow sales but still struggle to pay bills.
- You can look good on paper but have no money in the bank.
That’s why cash flow management is one of the most important parts of running a business, and growing your business.
Understanding the Cash Flow Statement
The cash flow statement is one of the three main financial reports (alongside the profit & loss statement and balance sheet). It shows exactly where money is coming from and where it’s going.
There are two main ways to prepare a cash flow statement:
Direct Method Cash Flow
- Lists actual cash transactions: receipts from customers, payments to suppliers, salaries, etc.
- Easy to understand because it’s straightforward.
- Harder to prepare if you don’t have detailed records.
Cash Flow Statement Indirect Method
- Starts with net income and adjusts for non-cash items (like depreciation) and changes in working capital.
- Easier to prepare from accounting records.
- More common in accounting software.
Both methods end with the same number your net cash movement for the period. However, if this seems at all confusing, use the direct method. It is just a list of what money is coming in and what money is coming out.
👉 Pro Tip: Typically the cash flow statement shows for a period of time month, quarter, or year. If you are seeing monthly positive cash flow but you are having to push out bills or payroll, break it down to a weekly level.
Negative Cash Flow vs Negative Net Income
These two terms sound similar but mean very different things:
- Negative Net Income: You are losing money on paper. Expenses are higher than revenue.
- Negative Cash Flow: You might be profitable, but the timing of money coming in and going out leaves you short.
Example:
- You finish a $100,000 project today, create the invoice and record revenue.
- The customer doesn’t pay for 90 days.
- Meanwhile, payroll and vendors must be paid next week.
- On paper, you’re profitable. In reality, you’re cash-poor.
This is why businesses need to manage profitability and cash flow together. But most focus on the first one and not the second, or they aren't sure how to bridge the gap tighter from money in to money out.
Why Businesses Struggle with Cash Flow
Most businesses don’t fail because of a lack of sales. They fail because of poor cash flow.
Here are the most common causes of negative cash flow:
- Customers paying late or stretching payment terms.
- Too much money tied up in inventory or equipment
- Growing too fast without enough capital to fund new business
- Poor expense tracking and overspending.
- Heavy debt payments that drain cash.
- Seasonal cycles that create uneven revenue.
- They pay too much to acquire customers.
The good news: each problem that you may have, there is a company out there who has been through the same thing and figured out a way to solve. We are here to bridge the gap.
Practical Cash Flow Solutions
When cash flow feels tight, the best place to start is working capital management.
What Can a Business Do to Increase Working Capital?
Working capital = Current Assets – Current Liabilities. Or said simpler, money owed to your business - money owed to others.
Here’s how to improve it quickly:
- Speed up customer collections
- Send invoices immediately. Some businesses take up to a week to invoice after work is completed.
- Use automated reminders. More touch points, faster payments. You want to be that annoying persistent friend who is always asking to hang out.
- Offer discounts for early payments. Make sure you have the margin to do this though. If you run tight margins sometimes you can't afford to discount anymore.
- Implement AR software. These systems come ready to go for automated follow ups, speedy invoice creation, and payment portals.
- Negotiate with vendors
- Ask for extended payment terms. The more you spend with a vendor the bigger fish you are. You have more leverage than you think.
- Align due dates with your cash inflows. Map out your cash flows prior to signing contracts, and deals so you can structure them to cash flow themselves.
- Utilize 3rd party payment platforms. These platforms can let you pay bills via credit cards for lower fees than your vendors charge you. This works for vendors who don't accept credit cards.
- Reduce inventory
- Avoid overstocking. Keep just enough inventory to make sales but not too much.
- Free up cash that’s tied to slow-moving products. Liquidate the slow movers once you know they probably aren't going to sell.
- Don't buy stuff you don't need or you can't pay back within 60 days.
- Cut wasteful expenses
- Review subscriptions. If you have loose guidelines on company spend, its highly likely someone or you signed up for stuff you don't need or use.
- Negotiate contracts. Insurance is a big one. I have seen companies save 10s of thousands of dollars by classifying their workers better for workers compensation.
- Eliminate non-essential spending. If you are missing payroll, acquiring debt, you are in the lean years of your business. Your spending should reflect that.
- Use short-term financing wisely
- A line of credit can help smooth timing gaps. Some businesses have to have cash. It's the nature of the business.
- Don’t rely on expensive debt as a long-term fix. Shop your offers with different lenders. Once they know they have to compete you get a lot better rates.
Even small changes here can have a big impact on cash flow. You want to adopt the Dave Ramsey debt snowball approach. Focus on quick easy wins to build momentum, then focus your efforts on the long term decisions that effect your cash flow.
Cash Flow Forecasting and Planning
One of the best tools for cash flow management is a 13-week cash flow forecast. It's the fancy way of saying what we have been saying. Map out your cash flows.
Why 13 weeks? It covers a full quarter. It is long enough to spot problems, short enough to stay accurate. Once you get past a few month in the future, your forecast can be wildly inaccurate.
A 13-week cash flow model includes:
- Projected cash inflows (customer payments, loans, sales).
- Projected cash outflows (payroll, rent, vendors).
- Weekly cash balances.
Benefits:
- See problems before they happen. You will notice weeks with negative cash flow that are greater than your expected bank balance. Or you will see if this customer pays late, we won't be able to make payroll.
- Plan for big expenses. If you have a month with higher than average net positive cash flow. You can plan to buy the inventory, or the truck.
- Gain peace of mind. Knowing where the potholes are allows you drive around them. Closing your eyes hoping to not hit potholes is stressful.
👉 Many businesses use a cash flow statement in Excel. Others use forecasting tools. The important thing is consistency. Update your forecast every week, and it becomes one of your most powerful decision-making tools.
Funding and Lending Options
Sometimes, even with good planning, you need extra funding to cover cash flow gaps. That’s where cash flow lending comes in.
Cash Flow Lending for Business
- Based on your ability to generate future cash flow, not just collateral. NOTE: Your interest rates will be higher than collateralized loans because they are based on real tangible assets you have.
- Good for service businesses and companies with recurring revenue. Revenue based lenders will also lend you typically 5-10% of your annual revenues over a short period of time with no collateral.
- Before you make a decision, make sure to factor in the monthly payment and how that affects your cash flow. Banks/lenders are typically less forgiving than your vendor you have worked with for a decade.
Business Cash Flow Financing
- Includes lines of credit, working capital loans, or merchant advances. These loans are catered towards business types.
- Can provide quick relief. Purchase order financing, accounts receivable financing, invoice factoring are all options for specific business types.
- Should be used as a bridge, not a crutch. You want to fix the model of your business to better cash flow itself from operating than if the model still requires it, then look for financing.
💡 Key takeaway: Lending can help you survive short-term gaps, but real stability comes from fixing the root causes of negative cash flow.
Best Cash Flow Businesses to Learn From
Some businesses naturally have better cash flow than others. If you’re starting a new venture or looking for inspiration, these industries are known for strong cash flow:
- Service businesses → Low startup costs, fast payment cycles.
- Subscription or SaaS models → Predictable recurring revenue.
- Franchises with proven demand → Established cash flow patterns.
- E-commerce with fast turnover → Quick cycles of cash in and out.
How Walden Solutions Helps You Build Positive Cash Flow
At Walden Solutions Group (WSG), we help owner-led businesses between $1M and $10M in revenue take control of their cash flow.
We don’t just keep your books compliant. We build systems that create financial clarity and confidence.
Here’s what that looks like:
- Fix messy books → So you finally trust your numbers.
- Forecast cash flow → With tools like 13-week models.
- Increase working capital → Free up money to grow.
- Design smarter systems → Reduce wasted effort and hidden costs.
- Give owners clarity → So you can pay yourself, scale with confidence, or step out of daily operations.
We call this our Cash Flow Rescue Roadmap™ — a proven framework to help businesses become cash flow positive.
Click here to schedule a call to see if your business would be a good fit.
Frequently Asked Questions
What is negative cash flow?
Negative cash flow happens when more money goes out than comes in during a period. It doesn’t always mean your business is failing, but it’s a warning sign that action is needed. If you have a profit but have negative cash flow, you can fix the business with some tweaking. If you are operating at a loss, and have negative cash flow, your business may have a very short runaway unless you change the business model.
What’s the difference between cash flow and profit?
Profit is accounting income (revenue minus expenses). Cash flow is actual money in the bank (what money do you have left at the end of the month). You need both to run a healthy business.
What is cash flow based lending?
It’s a type of loan where lenders give financing based on your company’s ability to generate future cash flow, not just your assets.
How do I build a 13-week cash flow forecast?
Start with your current bank balance. List expected inflows and outflows by week. Update it every week. Over time, it becomes your most powerful planning tool.
Ready to Fix Your Cash Flow?
Cash flow doesn’t have to keep you up at night. With the right plan, you can pay yourself more, invest in growth, and finally feel in control of your business.
At Walden Solutions Group, we specialize in helping owner-led businesses build strong, predictable cash flowing businesses.
If you need a cash flow forecast, we will build one out for your business for free. Click the link below to learn more.