Managing Your Cash Flow: The Lifeblood of a Small Business

Profitability ≠ cash flow

One of the most common mistakes: confusing profit with available cash. Your income statement might show a profit, while your bank account is in the red. How?

• You paid your supplier before selling the goods
• Your stock is full (an asset) but your account is empty (liquidity)
• You have expenses due at the start of the month, before your sales come in

This is what's known as working capital requirement: the gap between when you pay and when you collect.

The cash flow forecast: your #1 tool

A simple 3-month cash flow forecast lets you anticipate tight spots. For each week or month:

1. List your expected income (sales)
2. List your expected outgoings (rent, salaries, suppliers, social contributions)
3. Calculate the running balance

If the balance turns negative in 6 weeks, you know it now — not when it's too late.

5 levers to improve your cash flow

1. Negotiate supplier payment terms

Rather than paying on order, negotiate payment in 30 or 60 days. This gives you time to sell before you pay. Note: in France, payment terms between businesses are legally capped at 60 days from the invoice date.

2. Reduce collection times

As a retailer, you generally get paid in cash at the point of sale — that's an advantage. But if you also do B2B sales (catering, office supplies), invoice quickly and follow up without delay.

3. Optimize your inventory

Oversized stock is money tied up. Identify your slow-moving products and cut back your orders on those items. Invest instead in your best-sellers.

4. Set money aside during high season

If your business has seasonal peaks (year-end holidays, Ramadan, back-to-school), set money aside during the good months to absorb the slow ones.

5. Use an overdraft facility

An overdraft facility is an arrangement with your bank to temporarily go negative. It's a safety net, not a regular solution. Negotiate it before you need it — when your account is already in the red, banks are far less cooperative.

Mistakes to absolutely avoid

• Mixing personal and business accounts: illegal for companies, and risky for everyone
• Not setting aside money for social contributions and VAT: that money isn't yours — set it aside every month
• Reinvesting all your profit without keeping a reserve: always keep the equivalent of one month's fixed costs in reserve

Simple tools for tracking your cash flow

• Google Sheets / Excel: a cash flow table is enough to get started
• Pennylane, Indy, Comptabilité.fr: management tools accessible to non-accountants
• Your bank: most professional neobanks offer real-time dashboards