It’s the classic SME growth trap: profitable on the income statement but cash-strapped. Why?
Accounting profit includes:
Cash flow only measures actual money moving in and out of the bank.
Example: SME in services
BUT if customers pay on average 90 days and €100k in receivables remain unpaid by 31/12:
If the SME also funds strong growth (+30% revenue = +30% working capital), it can easily show €100k in profit with zero or negative cash flow.
1. Operating cash flow (most important for day-to-day management)
All money generated or spent by core business activities: customer receipts, supplier payments, salaries, overheads. A viable SME has a positive operating cash flow over the year. If it’s structurally negative, the business is burning cash—either speed up or pivot.
2. Investing cash flow
Purchases and sales of assets: buying a vehicle (cash outflow), selling obsolete equipment (cash inflow). Typically negative in a growing SME (investing phase), sometimes positive if assets are sold.
3. Financing cash flow
Movements tied to external funding: new bank loan (inflow), loan repayment (outflow), capital injection (inflow), dividend distribution (outflow). Varies by business phase.
Total of all 3 = Net change in cash over the period = difference between bank balance on 1 January and 31 December.
1. Build a 13-week cash flow forecast
Weekly table of expected receipts (based on customer deadlines) and expected payments (rent, salaries, suppliers, social charges, VAT, taxes). This is the SME standard – 13 weeks = 1 quarter, a sufficient horizon to anticipate without over-extrapolating.
2. Update every week
Compare actual vs forecast. If variance > 10%, identify the cause (late-paying customer, forgotten expense) and adjust.
3. Identify the 3 biggest risks
4. Activate levers in case of strain
Good business management software (CRM + invoicing + cash flow tracking) automatically calculates this forecast from signed quotes, issued invoices and known deadlines – a major time-saver vs Excel.
Discover the Orizen answer: Orizen cash flow forecast, modular and built for French SMEs.
Essai gratuit 14 jours What the Orizen cash flow forecast module costsFree cash flow (FCF) is operating cash flow minus maintenance capital expenditure (CAPEX). It is the cash available after funding operations and covering necessary investments – so the money that can be used to repay debt, pay dividends or fund growth. A key metric watched by investors and acquirers.
Three levels: (1) Weekly actuals for day-to-day management (updating the 13-week forecast); (2) Monthly for performance tracking and adjustments; (3) Annual for reporting and financing statements. An SME without weekly monitoring is flying blind and discovers cash strain too late to react.
Seven rapid actions (under 60 days): (1) Request 30% deposits on all new deals; (2) Reduce customer payment terms (30 days instead of 60); (3) Automate reminders from day 1 of delay; (4) Offer card payment links (instant receipt vs 30+ days for transfers); (5) Negotiate longer supplier payment terms (60 vs 30); (6) Postpone non-critical investments; (7) Sell dormant stock at cost. Typical gain: -10 to -20 days of working capital requirement in 2-3 months.