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A business can be profitable on paper but still fail if it runs out of cash. Understanding the difference between 'profit' and 'cash flow' is the first step toward long-term sustainability.
The Timing Gap
The primary challenge for most SMEs is the timing gap between when you pay your suppliers and when your customers pay you. If you have to pay for inventory today but won't receive payment from your clients for 60 days, you have a cash flow gap that needs careful management.
Strategies for Better Flow
- Incentivize Early Payments: Offer a small discount (1-2%) for invoices paid within 10 days.
- Negotiate with Suppliers: Try to extend your payment terms with vendors to align with your collection cycle.
- Monitor Weekly: Don't wait until the end of the month to check your bank balance. Use a rolling 13-week cash forecast.
