April 24, 2023

Unlocking the Power of Cashflow: A Guide for SMBs and E-commerce Businesses

Owning and running a business is often viewed as the embodiment point of achieving the American dream by the world of many ambitious entrepreneurs. Being your own boss, realizing your vision, and reaping the wealth from the rewards of your hard work can be highly desirable. However, managing a small or medium-sized business (SMB) can be quite challenging. Besides dedicating countless hours to growing your business, you must also be skilled in various areas, including cash flow management.

Every day, numerous new businesses are launched in the United States, but regrettably, not all of them thrive. According to the Small Business Administration (SBA), only fifty percent of all small businesses make it past their fifth year of operation. While many factors contribute to business failure, poor cash flow management is one of the most prevalent. In fact, a study conducted by U.S. Bank found that 82% of small business failures are due to cash flow problems.

So, how can SMBs effectively handle their cash flow to ensure long-term success? In the following discussion, we will define cash flow, explain its significance, and provide some tips for effectively managing and investing in it.

Here are some of the key points to take away:

  • Poor cash flow management is a major cause of business failure, with 82% of small businesses failing due to cash flow issues.
  • Knowing your business's cash flow can aid in anticipating and managing potential financial hurdles.
  • Maintaining precise financial records, comprehending your cash flow cycle, and establishing a budget are all effective strategies for managing your cash flow.
  • Mishandling cash flow can have harmful effects on your business, whereas effective cash flow management can help you secure financing.

Cashflow refers to the inflow of money and outflow of money or cash generated by a business, money which can include cashflow of money from sources such as sales, investments, loans, and credit lines, as well as cashflows such as money that is paid for expenses like bills, payroll, and operating costs. Effective cash flow: flow management is crucial for businesses of all sizes, but it can be particularly daunting for SMBs.

Small businesses often operate with limited resources, making it challenging to handle unforeseen costs or slow periods. They may also have restricted access to capital and finance, making it harder to cover short-term expenses. As a result, it is crucial for SMBs to have a firm grasp of their cash flow, enabling them to anticipate their spending and manage any potential challenges.

Cashflow is vital for businesses to begin with for several reasons, the most significant being that it ensures the continuity of your business. As previously mentioned, cashflow flow issues are one of the primary reasons for business failures.

Cash Flow Management Benefits Beyond Failure Avoidance

  • Make informed financial decisions: With a firm grasp of your cash flow, you can make sound judgments about pricing, investments, and expansions.
  • Achieve business objectives: Efficient management of cash flow can free up funds that can be invested in growth or other aspects of your business.
  • Enhance relationships with vendors and suppliers: Timely payment of bills can cultivate better relationships with vendors and suppliers, leading to more favorable terms and conditions.

How to manage cash flow effectively

Managing the financial resources of a business, especially for small and medium-sized enterprises (SMBs), can be a daunting task. It involves a complex set of activities that require a comprehensive understanding of the financial landscape of the organization, including the inflow and outflow of cash. Effective financial management is critical for any business to remain competitive, sustain growth, and achieve long-term success.

One of the most critical aspects of financial management is maintaining a balance between the inflow of money and the outflow of cash. This means keeping track of all the money that comes into the business and ensuring that the money going out is being spent effectively and efficiently. To achieve this balance, SMBs can take several measures to manage their finances more effectively. Let's take a close into some of these measures.

1. Use Software

Artoh can help manage cash flow effectively by offering a fast-track streamlined approach to financial management. With Artoh's one-click bank account integration, you can easily connect all your financial sheets, e-commerce stores and payment processors and receive real-time insights into your cash flow. This fast track also means you can track your income and expenses across all platforms, reconcile your transactions, and generate your P&L statement with just a few clicks. With Artoh, you can also set up automated financial reports and alerts, which can help you stay on top of your cash flow and make informed decisions about your business. Additionally, Artoh offers a user-friendly personal finance dashboard that provides a clear and concise overview of your financial health, giving you the knowledge and confidence to make smart financial decisions for your e-commerce business.

2. Maintain accurate financial records

Maintaining precise and current financial records may seem obvious, but it is crucial. Accurate, financial statements and records provide a comprehensive overview of your income and cash flow, allowing you to make informed decisions about your business.

3. Understand your cash flow cycle

Understanding your business's cash flow cycle is crucial for effective cash flow management. A cash flow cycle refers to the period required to generate income and obtain cash from sales. Each business has a unique cash flow cycle, and understanding your company's specific cycle can help you manage your cash flow more efficiently.

The cash flow cycle starts with the purchase of raw materials or inventory and ends when the payment is received for the goods or services provided. Understanding the length of your cash flow cycle can help you determine the amount of working capital needed to keep your business running smoothly.

For example, if your business has a long cash flow cycle, you may need to have more working capital on hand to cover expenses until payment is received. Conversely, if your cash flow cycle is short, you may not need as much working capital.

To understand your cash flow cycle, start by examining your sales process. Look at how long it takes to convert a sale into cash. You should also look at your payment terms and the average time it takes for customers to pay their invoices. Additionally, review your inventory management process, including how quickly you can turn over inventory and the time it takes to receive and pay for raw materials.

Once you have a clear understanding of your cash flow cycle, you can develop strategies to manage your cash flow more effectively. For example, if your cash flow cycle is long, you may need to negotiate longer payment terms with suppliers or implement a more efficient inventory management system. Alternatively, if your cash flow cycle is short, you may want to consider offering discounts for early payments or begin investing in new marketing initiatives to attract more customers.

4. Create a budget

Creating a budget is an essential step for every SMB to ensure financial stability and growth. A budget can help business owners make informed decisions regarding resource allocation, cost reduction strategies, and expansion opportunities. By predicting cash flow and monthly income and managing expenses, a budget can help businesses achieve their financial goals.

To create a budget, start by identifying all sources of income, including sales revenue, investments, and loans. Next, list all expenses, including fixed expenses such as rent and salaries and variable expenses such as utilities and supplies. Be sure to include a provision for unforeseen expenditures, such as emergency repairs or unexpected tax bills.

Once you have identified your income and expenses, it's time to create a budget plan. Start by allocating funds to essential expenses, such as rent, salaries, and utilities. Then, prioritize expenses based on their importance to the business. Consider reducing costs where possible by negotiating with suppliers, finding more cost-effective alternatives, or eliminating unnecessary expenses.

It's important to review and adjust your budget regularly to ensure that it remains relevant and effective. Track your actual income and expenses against your budget to identify any discrepancies and make necessary adjustments. If you consistently overspend in a particular area, consider finding ways to reduce costs or increase revenue to stay within your budget.

5. Manage your invoices

Managing your invoices is essential to ensuring timely payments for your business. By sending invoices promptly and keeping track of outstanding payments, you can maintain a healthy cash flow and avoid financial stress. Fortunately, web-based invoicing platforms are now available that can automate this process for you, saving you time and money. These platforms off era range of features that can simplify your invoicing process, including payment reminders, auto-billing, and recurring invoices. One of the key benefits of using a web-based invoicing platform is the ability to create and send payment reminders to your clients automatically. This feature can help ensure that your clients make their payments on time, reducing the risk of delays or missed payments. By utilizing an invoicing platform, you can also keep track of outstanding invoices and easily follow up with clients who have not made their payments. This can help you stay on top of your cash flow and avoid any surprises or financial difficulties down the line.

6. Stay disciplined with expenses

Monitoring expenses closely and spending money only on necessary items is crucial. Additionally, it is important to spend enough to spread expenses over time rather than paying all bills at once. This approach can help most people avoid monthly cash flow shortages.

Effective cash flow management is crucial for the survival and growth of SMBs. On the other hand, poor cash flow management can have several negative impacts, including:

  1. Damaged relationships with vendors and suppliers due to the inability to pay bills on time, can also harm the business's credit rating and make it harder to access financing in the future.
  2. Inability to meet payroll obligations, which can lead to employee dissatisfaction, turnover, and legal issues.
  3. Limited ability to invest in growth opportunities, such as new products, services, marketing campaigns, or hiring new employees.

The Importance of Cash Flow Management for Long-Term Business Success and Financing

In addition to these immediate impacts that losing the cashflow flow through bankruptcy has on a person of financial freedom, poor cashflow flow 101 and no cashflow flow management can also have long-term effects on the business's financial sheets. It can lead to a lack of transparency and understanding of the business's financial assets, which can hinder decision-making and long-term planning. Ultimately, poor cashflow flow management is one of two tracks the leading causes of SMB failure, with over 80% of businesses failing due to their cashflow flow problems.

Good cash flow management is vital for securing financing for a small business or investor. Lenders and investors will typically examine the cash flow statement to determine the business's ability to generate sufficient cash to repay a loan and forecast future cash flow. A clear cash flow statement that demonstrates the full cashflow game the business's ability to repay debt is crucial to securing financing.

While lenders may require a full balance sheet or a higher debt coverage ratio, demonstrating proper cash flow management can increase the likelihood of financing approval. A business that can show that it has developed a clear understanding of its cash flow and can manage it effectively is seen as a more reliable borrower.

The Power of Cash Flow Management

Flow management involves keeping a close eye on cash inflows and outflows, forecasting future cash flow, and managing expenses effectively. By learning and implementing these Cashflow 101 rules and flow management strategies, such as using playing the rules of the game and learning how to play the cashflow game to develop a comprehensive budget, establishing a cash reserve, and monitoring cash flow regularly, businesses can demonstrate their ability to manage their finances effectively and increase their chances of securing financing.


In conclusion, cash flow is vital for businesses of all sizes, but it can be particularly challenging for small and medium-sized businesses (SMBs). Effective cash flow management is essential for the survival and growth of SMBs, as poor cash flow management is one of the primary reasons for business failure. SMBs often operate with limited resources, making it difficult to handle unforeseen costs or slow periods. They may also have restricted access to capital and finance, making it harder to cover short-term expenses. Therefore, it is crucial for SMBs to have a firm grasp of their cashflow flow, enabling them to anticipate their spending and manage any potential challenges.

There are several measures that SMBs can take to achieve effective cash flow management. Firstly, using software, such as Artoh, can help manage cash flow effectively by offering a streamlined approach to financial management. Secondly, maintaining precise and current financial records is essential, as it provides a comprehensive overview of income and cash flow, allowing businesses to make informed decisions. Thirdly, understanding your company's specific cash flow cycle can aid in the efficient management of cash flow. Fourthly, creating a budget is crucial, as it assists business owners in making strategic decisions regarding resource allocation, cost reduction strategies, and expansion opportunities. Fifthly, managing invoices promptly and tracking outstanding invoices is crucial for ensuring timely payments. Finally, staying disciplined with expenses is essential for avoiding monthly cash flow shortages.

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