Managing Cash Flow

The month the money didn't show up

It's a Wednesday afternoon in Haldwani. Bhandari uncle is sitting behind the counter of his hardware shop, staring at his phone. He's just checked his bank balance for the third time today. The number hasn't changed: ₹47,000.

His cement distributor's payment is due on Friday. ₹1,80,000. Non-negotiable — miss it, and the distributor cuts supply. No cement means no business for the contractors who buy from him daily.

Bhandari uncle pulls out his credit register — the thick, dog-eared notebook where he tracks every contractor's outstanding balance. He flips through:

Ramesh: ₹1,35,000 (45 days old) Tiwari builder: ₹1,20,000 (28 days old) Sonu contractor: ₹78,000 (60 days old) Three smaller accounts: ₹67,000 combined

Total outstanding: ₹4,00,000. Four lakh rupees, owed to him by people he sells to every day.

On paper, Bhandari uncle's shop made ₹1.8 lakh profit last quarter. Profitable. Healthy. Growing, even. But right now, at this moment, he cannot pay ₹1,80,000 that is due in two days.

He calls Ramesh. "Bhai, woh payment..."

"Bhandari ji, builder ne abhi release nahi kiya. Next week pakka."

Next week. It's always next week.

This is the chapter about the one thing that kills more small businesses than bad products, bad marketing, or bad luck: running out of cash.

Not running out of profit. Running out of cash. They're not the same thing, and understanding the difference is the single most important financial lesson in this book.

Welcome to Part 2. Your business is running. Now you need to keep it alive.

Cash flow vs Profit — the distinction that saves businesses

Let's start with the most dangerous confusion in business.

Profit is what your books say you earned. Revenue minus expenses over a period. It's an accounting concept.

Cash flow is the actual money moving in and out of your bank account and cash drawer. It's what you can touch, spend, and pay bills with.

They are not the same thing. They can move in completely opposite directions.

Bhandari uncle's P&L says he made ₹1.8 lakh profit last quarter. That's real — he sold more than he spent. But ₹4 lakh of his revenue is stuck in credit given to contractors. The goods left his shop. The invoices were raised. The profit was recorded. But the cash? The cash hasn't arrived.

Meanwhile, his expenses — rent, staff salary, electricity, EMIs — those need to be paid in cash. On time. Every month. These expenses don't wait for contractors to pay up.

You can be profitable and still go bankrupt. This is not a theoretical risk. It happens every day, to businesses of every size.

Here's another example:

Ankita's D2C pahadi food brand is doing well on Instagram. Every jar of her pahadi mixed pickle has a cost of ₹120 (ingredients, jar, label, packaging) and sells for ₹299. After shipping (₹70 average) and platform fees, her profit per jar is about ₹80. Profitable on every single order.

But here's the problem. She buys ingredients in bulk — ₹60,000 worth every two months, because buying in season is cheaper. She orders jars and labels in advance — ₹25,000. She ships orders COD, and the courier company settles payments after 7-10 days. Returns and refunds eat another 8%.

So at any given time, she has ₹60,000 in raw ingredients sitting in her kitchen, ₹25,000 in packaging material, and ₹35,000-40,000 in transit with the courier company. That's ₹1.2 lakh of her money that's tied up — not lost, not wasted, just stuck in the cycle.

She's profitable on paper. But some months, she genuinely struggles to buy the next batch of ingredients because the cash from the last batch hasn't fully come back yet.

The lesson: profit is an accounting concept. Cash flow is survival.

Cash inflow and outflow — where the money moves

Every business has two streams of money:

Money coming IN (Cash Inflows)

• Sales receipts — customers paying you (cash, UPI, card, bank transfer)
• Credit collections — money owed to you that finally arrives
• Loan disbursement — when a bank releases a loan
• Refunds/deposits returned — security deposits coming back, tax refunds
• Owner's investment — you putting personal money into the business
• Government subsidies/grants — if applicable

Money going OUT (Cash Outflows)

• Raw materials/inventory — buying stock
• Rent — shop, warehouse, office
• Salaries/wages — staff payments
• EMIs — loan repayments
• Utility bills — electricity, water, internet, phone
• Taxes — GST, income tax, advance tax
• Transport/logistics — shipping, delivery, fuel
• Marketing — ads, promotions, printing
• Maintenance/repairs — equipment fixes, shop upkeep
• Personal drawings — money you take out for yourself

The timing problem

The fundamental challenge of cash flow is timing.

Pushpa didi buys milk, sugar, and tea leaves every morning. She pays cash. By evening, she's sold all her chai and collected cash from customers. Her cash cycle is one day. Money goes out in the morning, comes back by evening. Simple.

Bhandari uncle buys cement from his distributor on 7-day payment terms. He sells that cement to a contractor on 30-day credit. So he pays for the cement 23 days before he gets paid for it. For those 23 days, his money is stuck.

Now multiply that across 15-20 active contractors and ₹15-20 lakh of monthly sales. The timing gap creates a permanent cash deficit that he has to fund from somewhere.

You pay suppliers before customers pay you. This is the core cash flow problem for most businesses. And the bigger your business grows, the bigger this gap becomes — unless you manage it actively.

The credit trap

Credit is the lifeblood of Indian business. It's also the number one killer of cash flow.

"Credit dena majboori hai," Bhandari uncle says. "Hardware ka business hai — contractor material uthayega, building banayega, builder se payment aayegi, tab mujhe dega. Yeh chain hai. Agar main credit nahi dunga, toh contractor隔壁 ki dukaan chala jayega."

He's right. In hardware, building materials, wholesale — credit is not optional. It's how the industry works. But here's where things go wrong:

Bhandari uncle gives 15-30 day credit to contractors. His distributor gives him only 7 days.

So the credit he gives out is longer than the credit he receives. He's effectively financing his customers' businesses from his own pocket.

This is the credit trap: when credit given > credit received, you have a permanent cash drain.

The numbers tell the story

Let's look at Bhandari uncle's credit situation:

CREDIT GIVEN (Accounts Receivable):
  Average outstanding at any time:  ₹4,00,000
  Average collection period:        35-40 days
  Some accounts older than 60 days: ₹1,45,000

CREDIT RECEIVED (Accounts Payable):
  Distributor payment terms:        7 days
  Average payable at any time:      ₹2,20,000

GAP: He's funding ₹1,80,000 from his own pocket at all times.

That ₹1,80,000 is dead money. It's working, but it's working in someone else's business, not his.

Setting credit policies

Over 22 years, Bhandari uncle has learned — sometimes painfully — how to manage credit:

1. Know your customer before giving credit. New contractor? First three orders are cash only. No exceptions. Only after a track record does credit begin.

2. Set clear limits. Every customer gets a credit limit based on their history. Ramesh, who has been buying for 8 years, gets up to ₹1.5 lakh. New contractor Sonu gets ₹50,000 maximum.

3. Enforce payment timelines. Any invoice older than 45 days? No new credit until the old bill is cleared. This is the hardest rule to enforce — but the most important.

4. Follow up systematically. Every Sunday morning, Bhandari uncle reviews his credit register. He makes calls. He visits sites. He doesn't wait for customers to remember — he reminds them.

5. Accept some bad debt as cost of business. Not every rupee will come back. Bhandari uncle budgets 2-3% of credit sales as potential bad debt. If actual bad debt is less, that's a good year.

"Pehle mujhe bura lagta tha paisa maangne mein," Bhandari uncle admits. "Ab samajh aaya — agar main nahi maangunga toh meri dukaan band ho jayegi. Paisa maangna bura nahi hai. Paisa na maangna — woh bura hai."

Cash flow statement simplified

In the Accounting chapter, we introduced the three financial statements. Now let's focus on the cash flow statement — the one that tells you whether your business can actually survive.

The simplest version:

OPENING CASH BALANCE (start of month)
+ Cash Inflows (everything that came in)
- Cash Outflows (everything that went out)
= CLOSING CASH BALANCE (end of month)

That's it. If your closing balance is healthy, you're okay. If it's shrinking month after month, you're heading for trouble.

Monthly cash flow tracker

Here's a simple format anyone can use — in a notebook, in Excel, or in an app:

BHANDARI UNCLE'S HARDWARE SHOP
Cash Flow — January

OPENING BALANCE (1 Jan):               ₹1,25,000

INFLOWS:
  Cash sales                           ₹3,40,000
  Credit collections (from December)   ₹2,80,000
  Total Inflows                                    ₹6,20,000

OUTFLOWS:
  Cement/materials purchased           ₹3,60,000
  Shop rent                           ₹18,000
  Staff salaries (2 people)           ₹22,000
  Electricity + phone                 ₹4,500
  Transport/delivery                  ₹12,000
  Loan EMI                           ₹15,000
  GST payment                        ₹28,000
  Personal drawing                   ₹35,000
  Miscellaneous                      ₹8,000
  Total Outflows                                   ₹5,02,500

CLOSING BALANCE (31 Jan):              ₹2,42,500
                                       ─────────
Net Cash Flow this month:              +₹1,17,500

This tells Bhandari uncle: he started January with ₹1.25 lakh and ended with ₹2.42 lakh. Cash flow was positive. Good month.

But what if February's credit collections are delayed? What if two big contractors don't pay on time? Suddenly, inflows drop by ₹1.5 lakh, and the closing balance turns dangerously thin.

Track this every month. Not roughly, not "in your head" — actually write it down or enter it in an app. The businesses that die from cash flow problems are almost always the ones that didn't see the crisis coming.

Seasonal cash flow challenges

In Uttarakhand, almost every business has a season. And seasons don't just affect revenue — they create dramatic swings in cash flow.

Neema and Jyoti's homestay — feast and famine

Neema and Jyoti's homestay near Munsiyari has a very clear pattern:

Peak season (March-June): Bookings are full. Weekend occupancy 90-100%. Revenue: ₹1.5-2 lakh per month. Cash flowing in beautifully.

Second peak (October-November): Autumn crowd. Good bookings. Revenue: ₹1-1.5 lakh per month.

Monsoon (July-August): Roads are risky. Landslides. Tourists stay away. Revenue drops to ₹15,000-20,000. But expenses — caretaker salary, electricity, maintenance, EMI — continue at ₹45,000-50,000 per month.

Winter dead zone (December-January): Heavy cold. Very few guests except occasional trekkers. Revenue: ₹10,000-15,000. Expenses: same ₹45,000-50,000.

So for four months of the year, Neema and Jyoti are spending ₹30,000-35,000 more than they're earning. That's ₹1.2-1.4 lakh in cash they need from somewhere.

Rawat ji's apple orchard — one harvest, twelve months of bills

Rawat ji's apple harvest happens between July and September. In those three months, he earns 80-90% of his annual revenue — ₹6-8 lakh from selling to traders and APMC mandis.

But his expenses run all year: pruning (January-February), spraying and fertilizers (March-May), labour for harvest (July-September), cold storage (September-November), transport, packaging, and his own living expenses — every single month.

If he doesn't set aside enough from the harvest months, he's borrowing from moneylenders by February. At 2-3% per month interest. Which eats into next year's profit. A vicious cycle.

Pushpa didi's chai stall — tourist town rhythms

Rishikesh has its own cycle. February to May: tourist season, yoga crowd, rafting season beginning. October-November: post-monsoon rush. December-January: slow but steady (yoga students stay through winter).

July-August monsoon and extreme summer June: tourist numbers drop 50-60%. Pushpa didi goes from selling 100 cups a day to 40-50.

Planning for lean months

The solution is brutally simple but hard to execute: save in the good months to survive the bad months.

Practical rules:

1. Know your lean months. Every business has them. Identify yours.
2. Calculate your monthly survival cost. What's the minimum you need to keep the lights on? For Neema and Jyoti, it's ₹45,000-50,000.
3. Set aside a seasonal buffer. During peak months, put 20-30% of revenue into a separate account. Don't touch it.
4. Reduce expenses in lean months. Cut discretionary spending. Defer non-urgent maintenance. Negotiate seasonal rent if possible.
5. Find off-season revenue. Neema offers discounted long-stay packages for remote workers in winter. Rawat ji sells dried apple chips and apple cider vinegar year-round. Pushpa didi introduced thali meals for locals to maintain non-tourist revenue.

"Pehle hum peak season mein sab kharach kar dete the," Neema says. "Naya furniture le liya, renovation kar liya. Phir monsoon mein tension hoti thi. Ab pehle monsoon ka paisa alag rakhte hain, uske baad hi khareedari karte hain."

Working capital management

Working capital is the money your business needs to keep running day-to-day. It's the fuel in the tank.

Working Capital = Current Assets - Current Liabilities

Current assets: cash, inventory, money owed to you (receivables). Current liabilities: money you owe others short-term (payables, upcoming EMIs).

The operating cycle

Every business has an operating cycle — the time it takes for money to go out and come back:

Buy → Stock/Make → Sell → Collect

For Pushpa didi:

• Buy milk and supplies (morning) → Make chai → Sell chai → Collect cash (evening)
• Cycle: 1 day. Almost no working capital needed.

For Bhandari uncle:

• Buy cement from distributor → Stock in shop → Sell to contractor → Collect payment (30-45 days later)
• Cycle: 37-52 days. Significant working capital needed.

For Ankita's D2C brand:

• Buy ingredients (seasonal bulk) → Store → Make pickle → Pack → Ship → Courier collects COD → Courier settles payment (7-10 days after delivery)
• Cycle: 60-90 days. Heavy working capital requirement.

Three numbers to track

Inventory days: How long does stock sit before it sells?

• Bhandari uncle: cement moves in 10-15 days, but some items sit for 60+ days.
• Reduce this: Don't overstock. Order more frequently in smaller quantities.

Debtor days: How long do customers take to pay you?

• Bhandari uncle: average 35-40 days.
• Reduce this: Enforce credit policies. Offer early payment discounts.

Creditor days: How long do your suppliers let you delay payment?

• Bhandari uncle: 7 days from distributor.
• Increase this: Negotiate better terms. Build a track record of reliable payment.

The formula:

Cash tied up = Inventory days + Debtor days - Creditor days

For Bhandari uncle: 15 + 40 - 7 = 48 days of cash tied up in the cycle. That's 48 days' worth of expenses he needs to fund from his own pocket.

The goal: shrink this number. Faster inventory turns. Faster collections. Longer supplier terms.

Emergency fund for business

If COVID taught small business owners one lesson, it was this: you need a cash reserve.

When the first lockdown hit in March 2020, Bhandari uncle's shop was shut for 68 days. No revenue. But rent was still due. Staff needed to be paid. The loan EMI didn't stop.

He survived because he had ₹2.5 lakh in his business savings account — money he'd set aside over the previous two years, almost reluctantly. "Biwi bolti thi, paise bank mein kyun pada rakha hai, kuch karo. Aaj woh paisa hi kaam aaya."

Neema and Jyoti weren't as prepared. They had to borrow ₹1.5 lakh from family to keep their homestay going through 2020. It took them 18 months to pay it back.

How much to keep

Rule of thumb: 2-3 months of total expenses.

Where to keep it

• Savings account — instant access. Low interest (3-4%) but liquid.
• Liquid mutual fund — slightly better returns (5-6%). Money available in 1-2 business days.
• Fixed deposit with premature withdrawal — better interest. Break it if you need to.

Do not keep emergency funds in:

• Stock market (too volatile)
• Real estate (can't liquidate quickly)
• Your cash drawer (too tempting to spend)
• Your personal account (business money and personal money = separate)

"Emergency fund boring lagta hai," Ankita admits. "Usse kuch exciting nahi hota. Lekin jab courier company ne teen hafte payments roki thi ek baar, tab woh boring paisa hi kaam aaya."

Tools for managing cash flow

You don't need fancy software to manage cash flow. You need a system — something you do consistently.

Level 1: The notebook method

A simple notebook with four columns: Date, Description, Money In, Money Out. Update it every day. Total it every week. Review it every month.

This is how Pushpa didi started. It works.

Level 2: Excel / Google Sheets

A simple spreadsheet with monthly tabs. One row per transaction. Auto-sum formulas. A summary sheet that shows month-by-month cash flow trends.

Vikram uses Google Sheets for his franchise. Takes 15 minutes a day to update. Gives him a clear picture every Sunday when he reviews the numbers.

Level 3: Apps — Khatabook, Vyapar

Khatabook: Best for tracking who owes you and who you owe. Sends automatic payment reminders via WhatsApp. Free. Hindi interface. Perfect for shopkeepers like Bhandari uncle.

Vyapar: More features — invoicing, inventory, GST billing, expense tracking, reports. Good for businesses that need proper billing. Free basic version.

Both work on a simple smartphone. No accounting knowledge needed.

Level 4: Tally / Zoho Books

For businesses with higher revenue, GST compliance needs, and multiple transactions per day. These give you a proper cash flow statement automatically.

The one habit that matters most

Weekly cash review.

Every Sunday (or whatever day works), sit down for 30 minutes and answer three questions:

1. How much cash do I have right now? (Bank + cash drawer)
2. What payments are due this week?
3. What collections am I expecting?

If question 2 is bigger than question 1 + question 3, you have a problem — and you have a week to solve it.

Bhandari uncle does this review every Sunday morning before the shop opens. He's been doing it for the last 8 years, after the one time he couldn't pay his distributor and nearly lost the relationship. "Sunday ki chai ke saath ek ghanta — bas itna lagta hai. Aur poore hafte ki tension khatam."

Common cash flow killers

These are the mistakes that drain cash from otherwise healthy businesses:

1. Overstocking

Bhandari uncle once bought 200 bags of white cement because the distributor offered 5% off on bulk. It took him 4 months to sell them all. Meanwhile, ₹1.6 lakh was sitting in his shop as bags of cement instead of cash in his bank.

Rule: Buy only what you can sell in a reasonable time. A 5% discount means nothing if the cash is locked for months.

2. Giving too much credit

We've covered this. But it's worth repeating: every rupee of credit you give is a rupee of your cash that isn't working for you.

3. Mixing personal and business expenses

Pushpa didi admits she used to take ₹500-1,000 from the cash drawer for household expenses without recording it. Over a month, that's ₹15,000-30,000 that "disappeared" from the business. She couldn't understand why she felt cash-strapped when her stall was doing well.

Fix: Pay yourself a fixed monthly drawing. Record it. Everything else stays in the business account.

4. Delayed invoicing/billing

If you don't bill promptly, you can't collect promptly. Every day you delay sending an invoice is a day added to your collection cycle.

Ankita used to pack and ship orders the same day, but send invoices 3-4 days later because she was busy. That meant payment tracking started late, and customers who would have paid in 7 days were now paying in 10-11 days.

5. Ignoring small leaks

₹200 here, ₹500 there. Wastage in raw materials. Pilferage. Unnecessary subscriptions. Auto rides that could be combined. These feel insignificant individually but compound over months.

"Maine ek baar calculate kiya," Vikram says. "Chhoti-chhoti leakages — extra packaging material waste, food items expire ho gaye, duplicate purchases — mahine mein ₹8,000-10,000 hota tha. Saal ka ₹1 lakh. Woh toh mera ek mahine ka profit hai."

6. Not planning for taxes

GST payments, advance tax, TDS — these are large, predictable outflows. If you don't set aside money for them throughout the quarter, the due date arrives and suddenly ₹50,000-1,00,000 needs to go out at once.

Fix: When revenue comes in, immediately set aside the estimated tax percentage into a separate account. When tax is due, the money is already there.

Quick fixes when cash is tight

Sometimes, despite all planning, you hit a cash crunch. The bills are due, the collections haven't come, and you need solutions now. Here's what experienced business owners do:

1. Negotiate payment terms with suppliers

"Pehli baar mujhe distributor ko bolna pada — 'bhai, is baar 15 din aur de do,'" Bhandari uncle recalls. "Darr lagta tha. Lekin distributor ne kaha — 'Bhandari ji, 22 saal se le rahe ho, ek baar late ho toh kya hua.' Uss din samajh aaya — rishta hai toh negotiate ho sakta hai."

Most suppliers would rather give you more time than lose a reliable customer. But you have to ask before the deadline, not after.

2. Offer discounts for early payment

Tell your credit customers: pay within 7 days instead of 30, and get 2% off. You lose 2% margin but gain 23 days of cash. For a ₹1 lakh invoice, that's ₹2,000 cost to free up ₹98,000 three weeks early. Often worth it.

3. Reduce inventory to essentials

Stop buying anything that isn't going to sell this week. Cancel or postpone orders for slow-moving items. Convert excess stock to cash by offering discounts.

4. Use a short-term overdraft facility

If you have a current account with a bank, ask about an overdraft (OD) facility. It lets you temporarily withdraw more than your balance — essentially a short-term loan. Interest rates are higher (12-15%), but you only pay interest on what you actually use, and only for the days you use it.

Bhandari uncle has a ₹3 lakh OD facility with his bank. He uses it maybe 3-4 times a year, for a few days each time. "Insurance samjho — agar ek hafte ka gap hai, toh OD se kaam chala lo. Lekin habit mat banao."

5. Cut discretionary expenses immediately

When cash is tight, every non-essential expense stops. That planned renovation? Wait. That new signboard? Later. That staff outing? Next quarter.

Neema learned this during monsoon season: "July-August mein sirf survival expenses. Koi naya furniture nahi, koi decoration nahi. Bas bijli, salary, aur EMI. Baaki sab October tak ruk sakta hai."

6. Accelerate collections

Call your biggest debtors. Visit them if needed. Be polite but persistent. Sometimes all it takes is showing up at a contractor's site to get a cheque that's been "pending" for three weeks.

7. Consider invoice discounting or factoring

For larger businesses: some NBFCs and fintech companies will buy your unpaid invoices at a discount. You get 80-90% of the invoice value immediately; they collect from your customer. You lose 2-5% but get cash now. Services like KredX and TReDS facilitate this.

Putting it all together

It's Friday. Bhandari uncle managed to scrape together the ₹1,80,000 for his distributor. How?

He called Tiwari builder personally — not on the phone, but went to the construction site. Showed him the invoice. "Tiwari sahab, aapka kaam kabhi ruka nahi maine. Yeh payment zaruri hai." Tiwari paid ₹80,000 on the spot.

He used ₹55,000 from his OD facility — the first time this year.

And he took ₹45,000 from his business savings account — the emergency fund he'd started building after COVID.

The distributor got paid. On time.

That evening, sitting in his shop after closing, Bhandari uncle opens a new page in his credit register. At the top, he writes:

"Naya Niyam: Koi bhi credit 30 din se zyada nahi. Koi exception nahi."

New rule. No credit beyond 30 days. No exceptions.

He knows enforcing it will be hard. Some contractors will complain. Some might even go to the shop down the road. But he also knows this: the shop down the road closed last year. Cash flow problems.

He doesn't want to be next.

Key takeaways from this chapter:

1. Cash flow is not profit. You can be profitable and still run out of cash. Track both.
2. The timing gap kills businesses. You pay suppliers before customers pay you. Manage this gap actively.
3. Credit is necessary but dangerous. Set policies, enforce limits, follow up every week.
4. Track cash flow monthly. Opening balance + inflows - outflows = closing balance. Write it down.
5. Seasonal businesses need seasonal planning. Save in peak months. Survive in lean months.
6. Working capital is your daily fuel. Inventory days + debtor days - creditor days = how long your cash is stuck.
7. Keep an emergency fund. 2-3 months of expenses. Non-negotiable after COVID.
8. Use tools that work for you. Notebook, spreadsheet, app — anything is better than "keeping it in your head."
9. Watch for cash flow killers. Overstocking, too much credit, personal expenses mixed in, delayed billing.
10. When cash is tight, act fast. Negotiate with suppliers, accelerate collections, cut non-essential spending.

In the next chapter, we look at how businesses grow without external funding — no VCs, no angel investors, just the cash your business generates. Bootstrapping, reinvesting profits, and the art of growing steady. Bhandari uncle has done it for 22 years. Here's how.