Most importantly, learn the basics of accounting. An understanding of accounting principles will help you manage your cash flow better.

You should keep enough cash on hand to cover bills and cover emergencies.

Understand your operating cycle. This is a typical operating cycle:

  • Buying inventory.
  • Accounts receivable and cash sales make up your total sales. Accounts receivable are usually paid 30 days from purchase date – this applies to both your sales and inventory.
  • Inventory payment. Once inventory payments go through, your cash and accounts receivable are lessened.
  • Receivables collected. When you collect your receivables, your cash is increased. At this point the operating cycle has come full circle.

You can determine whether cash flow is sufficient by analyzing the operating/cash flow cycle. You’ll be able to see whether there is a net loss or gain, and which inflows and outflows are causing the losses or gains. Monitoring the cycle over time will alert you to changes in the cash flow.