How to read your money in and money out, spot problems early, and make better decisions with your business finances.
Cash flow vs profit: what is the difference
A business can be profitable and still run out of cash. Profit is revenue minus costs on paper. Cash flow is the actual movement of money in and out of your business. If clients owe you money but have not paid yet, you have profit on paper but no cash in hand. Understanding this difference is essential for keeping the business running.
Reading your cash flow statement
Your cash flow statement shows three things: operating cash (money from your core business activity), investing cash (money spent on equipment or assets), and financing cash (loans, investor funding, or repayments). The most important number for a small business is operating cash flow. If it is consistently negative, the business is spending more than it earns from its operations.
Common cash flow problems in Nigerian businesses
Late-paying clients are the biggest cause of cash flow problems. Offering a small discount for early payment can help. Seasonal slowdowns are another cause. Businesses in retail, hospitality, or events often see sharp drops in revenue during certain months. Planning for these periods with a cash buffer is essential. Taking on too many fixed costs before revenue catches up is also a frequent issue.
How to improve your cash flow
Invoice promptly. Do not wait until the end of the month to send invoices. Request deposits for large projects. Negotiate longer payment terms with your own suppliers while keeping client payment terms short. Review your recurring expenses regularly and cut anything that is not delivering value. Build a cash reserve equal to at least two months of operating expenses.
Using reports to stay on top of cash
A simple dashboard that shows your total money in, total money out, and current cash position is all most small businesses need day to day. Kuvra provides this in real time so you always know where you stand without waiting for a monthly report.
Put this into practice with Kuvra
Everything covered in this guide is built into Kuvra. Try it free for 20 days.
Start Free Trial