Ebook-Oct 7

How to Be
Cash Flow Positive

A Working Capital Playbook for Indian Businesses
By
Index
Introduction - The Flow 3
1. Understanding Cash Flow & 4

Working Capital
2. Cash Flow Positivity vs Profitability 9
3. Calculating Cash Flow for 12

Your Small Business
4. Tips to Maintain Healthy Cash Flow 17

for Your Small Business
5. Tools to Manage Cash Flow 25

for your Business
How to Be Cash Flow Positive - A Working Capital Playbook for Indian Businesses | 2
Introduction - The Flow
Imagine a river.
It flows uninterrupted producing strong currents. Now imagine if the

money in your business kept flowing like an uninterrupted river -
without barriers.
For small businesses, cash is a crucial commodity. The same money

is recycled into the business.
In times of need, readily available liquid cash is of utmost

importance. But managing cash can be tricky. In this e-book, we will
explain to you everything you need to know about cash flow - right
from how to manage the cash and where to find it if your cash
reserves dry out.
Chapter 1
Understanding
Cash Flow &
Working Capital
Two small business owners walked into a bar. They discussed
working capital. This is not a joke. Working capital is no laughing
matter. It is more than just a buzzword.
What is Working Capital?

To put it simply, working capital is the money a business uses for its
day-to-day operations. It is the amount of money held up in
operations.
In accounting terms, working capital is calculated as current

assets (things you own that can be converted into cash) –
(minus) current liabilities (costs you will incur in the next 12
months).
Calculating working capital helps determine the financial health of

the company. It means the business has more assets than liabilities
and can easily cover its liabilities.
Here are some examples of items that fall under current

liabilities:
Salaries payable
Monthly/quarterly bills (covers utility)
And here are some examples of current assets:
Stocks or Bonds
Cash
Why is working capital important?

What happens when you run out of money to meet your day-to-day
business needs? Bankruptcy! Having a negative working capital
balance is bad because you don’t have the money to keep your
business afloat and therefore, you may have to shut down.
Lenders are also skeptical of giving loans to businesses that have a

poor working capital balance.
So, how much working capital does your small business need?
Working capital depends greatly on the nature of your business. If

you are an online clothes or accessories retailer, you may need to
maintain inventory at all times. If you’re a seasonal business, you
may need to stock up at certain times of the year alone.
Here’s how you can determine your working capital needs:
Calculating your working capital requires you to determine your

operating cycle.
Think of the Operating Cycle as your money’s journey.
Here’s the perfect example from Brighthub:
If a company
manufactures purchases
the product raw material
on day 7 on day 1
sells it on
day 15
If the company sells the same
product on a cash basis, the
working capital cycle is 15 days.
receives online
payment on
day 23
Then the
working
capital cycle
is 23 days.
While calculating working capital or its ratio (current assets/current

liabilities), a ratio between 1 and 2 is considered good.
Is too much working capital good?
An excess of working capital indicates ﬁnancial ineﬃciency

and can make the stagnating cash a non-performing asset!
According to Divestopedia:
“ Excess working capital is not all about current assets,

rather it is current assets minus current liabilities. This
inclusion of liabilities makes it that much more difficult
to determine how much of the working capital is
non-operational since the excess can be due to both “
high assets and low liabilities.
Dangers of excess working capital - the flow is disrupted!
We are wired to think a little extra cash in hand never hurts but when
there’s too much cash sitting idle, the flow is disrupted. There are
many disadvantages to having excess working capital. Here are
some critical ones:
Excess cash stagnates and does not earn anything for the
business
Can lead to unnecessary purchases, mismanagement, or even

theft
When the rate of return on cash flow is low, it can adversely

affect company goodwill
Low rate of return can also lower company value
Can impact turnover ratios negatively
Chapter 2
Cash Flow Positivity

vs
Profitability
There is a good difference between being cash flow positive and
being profitable. The two concepts are easily misinterpreted, even
used interchangeably.
Your business is Cash Flow Positive when:
the money coming in and out of your business on any given day is more
than the money going out.
Your business is Profitable when:
Your income or net revenue is more than your expenses.
What’s the difference?
A business can be cash-flow positive but may not be

profitable. Also, it is possible that a business is profitable
but is not cash flow positive.
KEEP IN MIND:
Cash flow records inflow and outflow of money. For example:
You manufacture your product/service for Rs.500 send out an

invoice for Rs. 1000.
You are yet to be paid for this.
This entry will be made in your Profit and Loss statement but
will not be counted as a cash inflow because you haven’t
received the payment yet.
In this scenario - you are still not cash flow positive but
you’re profitable by ₹500.
Chapter 3
Calculating
Cash Flow for
Your Small Business
There are two ways of calculating cash flow for your business.
Indirect method
Direct method
Here is an infographic showing the differences between the two

methods -
Image credit Wallstreetmojo:
The direct method applies more to a small business as it’s concise.
To prepare a cash flow statement, you need to account for:
Operational activities
Investing activities and
Financing activities
Here is the illustrative version of heads that you can include to

calculate cash flow.
Image by ClearTax.in
Chapter 4
Tips to Maintain
Healthy Cash Flow
for Your
Small Business
Experts believe working capital or cash flow management is
probably the toughest accounting job for a business. That’s why we
put together a few tips to help you manage your working capital,
smartly.
For starters:
Plan your cash flow beforehand
Set realistic sales and profit goals
Figure out sources of short term loans for bad/rough times and
use them only when in dire need
Record your expenses and keep track of your accounting
Use tools to automate the process but also have a person keep
an eye on the accounts
Important pointers to maintaining healthy cash

flow:
1. Keep a cushion:
While we discussed how excess working capital can be dangerous,

it’s important to strike a fine balance and keep a cushion for when
you need the cash handy. How much do you need to stash away?
Accountants recommend keeping one month’s operating profit as a

cushion for emergencies or fast cash.
2. Manage expenses smartly:
Keep a track of your payables and receivables. Don’t spend too much
in peak season or use up the cushion money without accounting for
when your payments are going to come in.
SOME EASY TIPS:
Keep a track of how much you’re spending during the

off-season (applicable for seasonal businesses).
Don’t hire more than there is work in the business.
Look at your cash flow projections often - once or twice in a

week is good
Defer/postpone expenses or investments until the money

comes in
Avoid those big one-off expenses
Keep an eye on the taxes - they can eat into your cash flow too!
Try and get paid faster by your clients
Managing Cash Flow on Bank Holidays

When banks go on strike, payment settlements are halted
temporarily. A bank strike will delay timely payments and can cause
working capital shortages.
Some working capital problems during bank holidays:
You cannot operate day-to-day activities with the lack of

working capital.
Your company loses out on market opportunities such as

cash discounts and bulk lower prices on products.
Your company could lose out on its creditworthiness as you

will be unable to pay off your obligations when they have
matured.
You will lose out on investment and expansion opportunities

due to insufficient working capital.
Your business will not be able to utilize fixed assets and your
assets will be depreciated in value, which will later lead to
increased costs.
Solution: Instamojo Faster Payouts
Due to unpredictable situations like bank strikes and holidays, we
came up with a solution to address small business concerns; the
faster payouts feature.
With this, you can receive payments into your bank account instantly
for an additional fee of 1%.
With faster payouts, your business cash flow is secure as there is
money when you need it.
What’s more? You decide how

frequently you need the payouts in
your bank account. With faster
payouts you get:
- Instant payouts
- Same Day payouts and
- Next-Day payouts
Faster payouts allow you to:
Account for unexpected expenses

Pay vendors on time
Positive cash flow for business
Keep your business afloat in times of uncertainty, with the right tools
and features. We ensure quick, easy and fast payment processing for
your daily business needs.
SIGN UP TO GET ACCESS TO FASTER PAYOUTS
Finding alternative sources of working capital
When cash flow is disrupted or your cushion is running low, you can
always resort to getting a working capital loan. But, consider the
following before venturing out to get a working capital loan:
1. Take a loan if your business is undergoing serious seasonal

sales fluctuations
2. Consider it if your cash cushion is drying up
3. Go for a loan if your cash flow has been scanty or imbalanced
4. Use the loan to cash in on a big opportunity that will ensure

return on investment
Types of Working Capital Loans for your business:
1. Trade Creditor - loan offered by a present or potential

supplier.
2. Bank Overdraft - offered by various P2P lenders
3. Account Receivable Loan - when you need to fill a sales order
4. Factoring or Advances - loans based on future credit card

receipts, ideal for businesses accepting credit cards or
subscription businesses.
5. Short term loans - offered by several banks and NBFCs, can

be collateral-free too!
6. Loan from friends or investors - an ideal loan for new

businesses or those that do not have a credit history
Documents Required to get a Working Capital Loan:
Table credit: Profitbooks.net
Chapter 5
Tools to Manage
Cash Flow for
Your Small Business
Here is a list of free accounting apps on Android for small businesses
in India.
1. Digital Udhaar Khata (FREE app)
This app works best to manage your working capital expenses. It is a

basic smartphone app that allows you to record your expenses and
keep a track of your cash flow. It also works offline!
Here are some of its main features:
- Records cash paid and cash

received
- Calculates balances
- Generate expense report and

export as PDF
- Data backup feature
- Secure OTP login
2. Book Keeper (Free download, 14-days trial; Rs. 300/mo post
free trial)
This is a GST compatible accounting, billing & inventory app for small
and medium businesses in India. The app is specifically built for
Indian businesses. No internet required and no accounting
knowledge required.
Here are some of its main features:
- Adding multiple accounts

and transactions
- Compatible with Tally software
- Send estimates, invoices on

email, whatsapp, etc
- Track expenses, credit, and more
- Get in-depth financial reports -

30+ reports available
3. BOSS – Bookkeeping & Accounting, Sales and Stock
Management (FREE download)
This is an advanced app that lets you track your business expenses
and do more than just export the data into excel sheets. You can
make pie charts to visualize your expense data and add multiple
vendors or customers to your account.
Here are some of its best features:
- Work in any currency
- Record inventory, expenses,

and cash flow
- Scan barcodes directly from app
- Create, edit, and share invoices

with customers
- Integrate with CRM tools
3. Instamojo App (Forever FREE)
Check out the new (and revamped) Instamojo Android app! Now you
can manage your business- anywhere, anytime. Keep track of all
sales & payments from your buyers in real-time. The Instamojo app
not only provides you with total sales but also showcases the list of
transactions.
Some awesome features include:
- Business tools app store. The

app store boasts of strong
business growth-focused apps
such as invoice generator, leads
manager, credit book and many
more.
- Faster payouts. Start

transacting on Instamojo to get
access to instant, next day, and
same-day payouts of up to
Rs.2,00,000*
- Free first Shipping. Ship to over

26,000+ PIN codes in India with
mojoXpress.Your first shipping is
FREE!
Powering 1,000,000+
Businesses like you
in India
Get more than just a payment gateway. No setup fee,
No maintenance fee. Use it the way you want !
Start Collecting Payments With Instamojo Now
www.instamojo.com
www.instamojo.com/blog

Ebook-Oct 7

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ebook-Oct 7

Uploaded by

Copyright:

Available Formats

How to Be

Cash Flow Positive

Introduction - The Flow 3

1. Understanding Cash Flow & 4

2. Cash Flow Positivity vs Profitability 9

3. Calculating Cash Flow for 12

4. Tips to Maintain Healthy Cash Flow 17

5. Tools to Manage Cash Flow 25

It flows uninterrupted producing strong currents. Now imagine if the

For small businesses, cash is a crucial commodity. The same money

In times of need, readily available liquid cash is of utmost

What is Working Capital?

In accounting terms, working capital is calculated as current

Calculating working capital helps determine the financial health of

Here are some examples of items that fall under current

Why is working capital important?

Lenders are also skeptical of giving loans to businesses that have a

Working capital depends greatly on the nature of your business. If

Here’s how you can determine your working capital needs:

Calculating your working capital requires you to determine your

While calculating working capital or its ratio (current assets/current

Is too much working capital good?

An excess of working capital indicates ﬁnancial ineﬃciency

“ Excess working capital is not all about current assets,

Dangers of excess working capital - the flow is disrupted!

Can lead to unnecessary purchases, mismanagement, or even

When the rate of return on cash flow is low, it can adversely

Low rate of return can also lower company value

Can impact turnover ratios negatively

Cash Flow Positivity

Your business is Cash Flow Positive when:

Your business is Profitable when:

Your income or net revenue is more than your expenses.

What’s the difference?

A business can be cash-flow positive but may not be

Cash flow records inflow and outflow of money. For example:

You manufacture your product/service for Rs.500 send out an

Here is an infographic showing the differences between the two

Here is the illustrative version of heads that you can include to

Plan your cash flow beforehand

Set realistic sales and profit goals

Record your expenses and keep track of your accounting

Important pointers to maintaining healthy cash

While we discussed how excess working capital can be dangerous,

Accountants recommend keeping one month’s operating profit as a

SOME EASY TIPS:

Keep a track of how much you’re spending during the

Don’t hire more than there is work in the business.

Look at your cash flow projections often - once or twice in a

Defer/postpone expenses or investments until the money

Avoid those big one-off expenses

Try and get paid faster by your clients

Managing Cash Flow on Bank Holidays

You cannot operate day-to-day activities with the lack of

Your company loses out on market opportunities such as

Your company could lose out on its creditworthiness as you

You will lose out on investment and expansion opportunities

What’s more? You decide how

Account for unexpected expenses

SIGN UP TO GET ACCESS TO FASTER PAYOUTS

Finding alternative sources of working capital

1. Take a loan if your business is undergoing serious seasonal

2. Consider it if your cash cushion is drying up