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  • Writer's pictureVjeko Skarica

How to Make Your SME Cash Flow Bulletproof?

Updated: Dec 2, 2021

A stack of medicine pills laying on a stack of cash in Euros

What is it about SMEs and cash flow planning?

Cash flow is a fairly simple concept to grasp, but it can create problems for entrepreneurs if it’s not tended to properly. And unfortunately, it mostly isn’t.

Extremely simply put, cash flow is the total amount of money being transferred into and out of a business. If it’s positive, more money is coming in than it’s coming out. And vice versa.

Fairly simple, right. There’s a saying that describes the importance of cash flow fairly well:

“Revenue is Vanity, Profit is Sanity and Cash is King”

Making a sale doesn’t mean the client paid. That’s why cash flow is not intuitive. You can’t do it in your head, for the most part. No matter how hard you try you won’t be able to pay your bills with profits, because they’re still not cash.

Comparison of Cash flow and Profit

Cash flow vs profit (Source: Neat)

Small business owners often disregard the importance of cash flow planning and forecasting, which makes them extremely vulnerable. (82% of SMEs fail, remember).

Here are some tips and tricks for cash flow management, divided into 3 main areas - company culture, expenses, and revenues.

Cash flow planning culture in SMEs

If SME shifts from profit culture to cash flow culture leadership can keep the company afloat easier. Building the planning culture starts with the boss. SME owners should be the ones moving the company towards cash flow mindfulness and preach the philosophy of planning.

Unfortunately, around 40% of SME owners consider finances to be the worst part of owning a business. They are overwhelmed by finances and find them time-consuming and complicated. This makes sense, considering that they (probably) don’t have a financial background, and their priority is simply growing their business. Nonetheless, cash flow planning and forecasting is THE BEST way for smaller companies to survive the growth hardships, especially in their early phases. When owners know what happens with their cash flow, the company becomes more resilient and they can:

  • Know exactly how much money the company has at any given point in time, and avoid cash flow shortages.

  • Maintain amazing relationships with their employees (keep them happy by paying them on time), suppliers (ditto), and clients (e.g. various discounts and grace periods for key customers)

  • Create what-if scenarios and be ready for swift decision making

  • Be ready for unpredictable expenses (various fees, new products, and services, equipment, relocations, etc)

  • Have a good night's sleep - data visibility gives owners peace of mind.

When owners prioritize cash flow planning and pass the message down the hierarchy, companies survive, and good things happen.

A Snippet from our infrographic "The State of SMEs in the EU" - An average SME has only 27 cash buffer days in reserve

From our infographic "The State of SMEs in the EU"

Know what goes in - revenues

  • Encourage payment collection

When thinking about cash flow, it’s not only important how you generate revenues, but also when. To have complete control over your working capital you need to predict when the payment itself is happening, as precisely as possible. Only 40% of businesses in the EU are paid on time. This is the cause of ¼ of SME bankruptcies. In other words, you need to make sure that your clients pay sooner rather than later. A creative way to do that is to provide early payment discounts for your most eager clients.

  • Think about new business ideas - innovate

Another way to improve your SME cash flow is to try to adapt to the latest market conditions and your clients’ needs by innovating company processes and offering new products or services. For example, during lockdowns, many fashion brands had to rely only on e-commerce sales. Those of them who were agile enough to react on time managed to go through the pandemic almost unscathed.

  • Try leveraging digital tools and new technologies

Digital transformation often goes hand in hand with innovation, but sometimes SMEs are reluctant to adopt new technologies. The main reasons for this are the reluctance and lack of awareness of their owners. However, 85% of all SMEs report that the digital tools they are using have helped their business significantly. More importantly, tech is getting more and more affordable every day.

  • Apply for an investment or a loan

And finally, although it’s not revenue per se - if the going gets tough, consider applying for a loan or speaking to potential investors. Preparing for the pitch will help you gain more insight into your operation, and if you tracked your cash flow properly up to that point, half of your work is already done. Lenders will most certainly appreciate your financial discipline.

To sum up, here’s what you can do to improve your SME’s cash flow revenue-wise:

  • Encourage payment collection

  • Think about new business ideas - innovate

  • Leverage digital tools and new technologies

  • Apply for an investment or a loan

Count what goes out - expenses

If you got the entire team on board, it shouldn’t be too hard to maintain control over expenses. No matter the industry and type of company, payroll, and marketing are always among the biggest spenders. Both are crucial, and you don’t necessarily need to make drastic cuts, but you can always save a cent or two by being creative. As far as the rest goes, here are some more tips:

  • Save money on luxuries, utilities, software subscriptions, etc.

This one is simple, ask yourself 3 questions: Do we need this? Are there cheaper alternatives? What would the consequence be if we let go of this purchase? You’ll be surprised how many expenses you can eliminate this way.

  • Lease instead of buying

Leasing equipment and machinery will free up your cash flow and make for more predictable expenses. Capital expenses can be an unnecessary luxury for SMEs strapped for cash.

  • Optimising inventory/stock

Having excess stock on hand is expensive and can ruin your cash flow. When you have a solid cash flow forecast and growth predictions, you can predict seasonality and avoid overstocking, while having enough supplies to cover all your clients’ needs.

  • Negotiate - vendors, employees

Business owners sometimes forget that everything is subject to negotiation. Contracts with vendors, employees, business partners... Once again, cash flow forecasting will help you to figure out what and when exactly to negotiate and get better deals.


If you think that your financial models are overgrowing spreadsheets, and you need a better financial modeling tool, yu might want to check out Farseer: 
- Financial modeling in Farseer is centralized, fast, consistent - you won’t need to worry about errors and mistakes. 
- Natural language formulas are intuitive, error-proof and cannot be deleted by accident. 
- Sharing and exporting your work is granulated - you can share only parts of your model relevant to your user 
- Built-in hierarchy makes modeling transparent by default 
- Reorganize models by simply dragging and dropping entire spreadsheets to a specific location in the model