Question 1

What is cash flow and why does it matter?

Accepted Answer

Cash flow is the net amount of money moving in and out of your business each month. Positive cash flow means more money comes in than goes out. Businesses with strong revenue can still fail if they run out of cash, making this the most important number to watch.

Question 2

How do you calculate monthly cash flow?

Accepted Answer

Subtract total monthly expenses (rent, payroll, supplies, loan payments, taxes, etc.) from total monthly revenue. The result is your net cash flow. Include every recurring cost, not just the obvious ones.

Question 3

What is the difference between cash flow and profit?

Accepted Answer

Profit is an accounting measure that includes non-cash items like depreciation and accounts receivable. Cash flow tracks actual money in the bank. You can show a profit on paper while being cash-negative if customers pay late or you carry excess inventory.

Question 4

How much cash reserve should a small business keep?

Accepted Answer

A common guideline is 3-6 months of operating expenses. Seasonal businesses or those with unpredictable revenue should aim for the higher end. This buffer protects you from slow months, late-paying customers, and unexpected costs.

Question 5

What is cash flow runway?

Accepted Answer

Runway is how many months your business can operate before cash runs out, assuming current spending and revenue continue. Divide your current cash balance by your monthly net burn (expenses minus revenue). If you have $60,000 and burn $10,000 net per month, you have 6 months of runway.

Question 6

How do I fix negative cash flow?

Accepted Answer

Start with the fastest levers: collect receivables sooner, negotiate longer payment terms with vendors, cut non-essential spending, and offer early-payment discounts to customers. For structural problems, you may need to raise prices, reduce payroll, or secure a line of credit to bridge gaps.

Question 7

How does seasonality affect cash flow?

Accepted Answer

Seasonal businesses earn most of their revenue in a few months but pay expenses year-round. This creates cash crunches during off-peak months. The solution is to build reserves during peak season and forecast month by month so you know exactly when cash gets tight.

Question 8

Should I use a cash flow forecast or a budget?

Accepted Answer

Use both. A budget sets spending targets by category. A cash flow forecast projects your actual bank balance month by month, accounting for when money arrives and when bills are due. The budget tells you what to spend; the forecast tells you if you can afford to spend it this month.

Cash Flow Forecast for Daycare

Cash Flow Forecast

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