Ever glanced at your business bank account and thought, “Where did all my money go?” You’re not alone! Many profitable service-based businesses and health and wellness practitioners struggle with this exact challenge. It often boils down to what is cash flow and more importantly, how you can manage it so you’re not left stressing over bills or payroll.
What Is Cash Flow (And Why It Matters)?
Cash flow is the movement of money in and out of your business over a set period. It’s the core of your company: if money doesn’t flow in fast enough to cover the outflow (bills, wages, subscriptions), you can end up in a tight spot, even if you’re technically profitable.
Common Cash Flow Pitfalls
- Delayed payments: If clients take 30, 60, or 90 days to pay, you might struggle to cover immediate expenses.
- High operational costs: Rent, marketing tools, or staff salaries can stack up quickly.
- Seasonal fluctuations: Many health and wellness businesses see peaks and dips in demand throughout the year.
What Is a Cash Flow Statement?
A cash flow statement (sometimes referred to in the plural as cash flow statements) is a financial report that tracks actual money moving in and out of your business. This contrasts with a profit and loss statement, which records revenue when it’s earned (not necessarily received). If you really want to see your day-to-day liquidity, a cash flow statement is essential.
Key Sections of a Cash Flow Statement
1. Operating Cash Flow
- Money earned (e.g., client invoices, consulting fees) and spent (e.g., payroll, rent, software subscriptions) in daily operations.
2. Investing Cash Flow
- Cash used to purchase assets (like a new Pilates machine) or cash gained from selling equipment you no longer need.
3. Financing Cash Flow
- Funds you acquire or repay through business loans or investor contributions—especially important if you’re expanding a health clinic or adding new services.
When operating, investing, and financing cash flows are balanced and more money is coming in than going out, you have positive cash flow. That’s where cash flow management comes in: you need a clear plan to handle your inflows and outflows effectively.
Cash Flow Management: Keeping Your Business Healthy
Cash flow management is the strategy you use to track, analyse, and optimise your money movements. For service-based entrepreneurs and wellness practitioners, it can be the difference between sleeping soundly or lying awake worrying if you’ll make payroll.
3 Tips for Better Cash Flow Management
1. Streamline Your Invoicing
- Offer clear payment terms and automated reminders.
- For big projects, consider partial payments upfront to cover initial costs.
2. Cut Unnecessary Expenses
- Review recurring costs (software, subscriptions, etc.). Cancel or downgrade anything not driving revenue.
- Negotiate better terms with suppliers—every dollar counts.
3. Maintain a Cash Reserve
- Set aside some profits during busy months. This can cushion slower periods and help you avoid cash crunches.
Cash Flow Forecasting: Planning for Your Future
So you understand what is cash flow, but how do you plan for it? Enter cash flow forecasting, the practice of predicting future cash inflows and outflows. This is essential for service-based businesses that may have sporadic or project-based revenue, like marketing agencies, therapy practices, or yoga studios.
How to Start Cash Flow Forecasting
1. Project Incoming Cash
- Estimate revenue from clients, retainers, or upcoming events.
- Factor in any seasonal variations or special promotions.
2. Calculate Outgoing Cash
- Include essential expenses like rent, payroll, insurance, and loan repayments.
- Don’t forget periodic costs like annual software fees or end-of-year bonuses.
3. Review and Adjust Regularly
- Business is fluid, so your cash flow and forecasting should be, too. Update your forecast whenever a major client arrives or leaves.
- Pro Tip: Tools like Xero, QuickBooks, or MYOB can automate much of cash flow forecasting. This saves you time and reduces human error.
Real-World Cash Flow Management Examples:
Sophie’s Marketing Agency
Imagine Sophie, who runs a boutique marketing agency. She’s been landing large projects (hooray for profit!) but her clients pay on 60-day terms. Meanwhile, Sophie needs to pay her team every fortnight. She might look profitable on paper, yet she’s feeling the crunch because her cash flow is delayed. By using a cash flow statement and focusing on cash flow management, Sophie can create a cash flow forecast that helps her:
- Anticipate when large invoices will be paid.
- Plan for those mid-month salaries.
- Decide whether to take on new projects or invest in tools.
John the Electrician
Now take John, an electrician who runs a small team of tradies. He often has to pay upfront for materials and cover his employees’ wages every week. But when he works for larger construction companies, it might take them 45 or 60 days to settle invoices. This delay can put John under significant pressure if he doesn’t have cash flow forecasting in place. By preparing a weekly cash flow statement and practising proactive cash flow management, John can:
- Track project expenses in real time and set aside funds for payroll.
- Negotiate more flexible payment terms or deposits with big clients.
- Maintain a healthier financial cushion to cover any unexpected costs.
Putting It All Together: Cash Flow and Forecasting for Service Businesses
Cash flow and forecasting go hand in hand when it comes to sustaining and growing your service-based business. Whether you’re an online coach, a fitness studio owner, or a digital marketing guru, staying on top of your cash flow statements and proactively managing inflows/outflows can save you a lot of stress.
- Know Your Numbers: Keep an updated cash flow statement so you always know where your money is.
- Implement Cash Flow Forecasting: Predict future peaks and troughs to avoid nasty surprises.
- Optimise: Manage receivables, control costs, and ensure you’re always prepared for the next season or project.
Ready to Take Control of Your Cash Flow?
No more sleepless nights wondering if you’ll have enough to pay the bills. At Propeller Advisory, we specialise in cash flow management and cash flow forecasting for service-based and health and wellness businesses. Our team will help you:
- Get paid faster: Implement better invoicing and collection processes.
- Stay ahead of seasonal lows: Create a buffer for slower months.
- Plan for growth: Use cash flow statements to make informed decisions about hiring or investing in new equipment.
Let’s Talk!
If you’re tired of juggling invoices and hoping the bank balance stays positive, book a quick chat with our friendly experts today. We’ll walk you through what is cash flow, help you master what is a cash flow statement, and fine-tune your cash flow forecasting—all so you can focus on what you do best: serving your clients.
Contact Propeller Advisory today and start enjoying stress-free cash flow management!
Need Help Managing Your Cash Flow?
We’re here to guide you with expert cash flow and forecasting solutions tailored to your business. Call Propeller Advisory now and discover how to keep your finances healthy so you can grow with confidence.
