Stage Ten

Many entrepreneurs are attracted to business models capable of generating consistent cash flow streams. Reliable monthly cash flow can provide living expenses or be reinvested to compound returns. This comprehensive guide examines popular cash flowing business models, startup considerations, increasing cash flow velocity, key financial metrics, tools to measure cash flow, and tips to optimize free cash flow.

(Disclaimer: This article is for informational purposes only and does not constitute professional financial advice. Please conduct your own research and consult qualified finance professionals before making business or investment decisions.)

What are Cash Flowing Businesses?

Cash flowing businesses earn consistent cash revenues on an ongoing basis, ideally with high predictability and frequency. Monthly cash inflows exceed business costs, creating excess free cash. Ideal cash flow businesses require minimal overhead and generate wide profit margins between expenses and sales prices. Owners must understand cash timing intricacies in each model.

Why Start Cash Flowing Businesses?

Advantages of high cash velocity businesses include:

  • Provides living income without relying only on equity value
  • Allows bootstrapping growth by reinvesting cash flows
  • Compounds returns through rapid cycling and reinvestment
  • Enables easy debt servicing with matching cash inflows
  • Smooths seasonal revenue fluctuations impacting income
  • Improves valuation multiples with consistent performance
  • Reduces risk compared to lumpy one-time sales models

Cash flow visibility aids financial planning and access to capital.

Cash Flow Business Models

Common cash flow oriented small business models include:

  • Rental income – apartments, office space, equipment, venues, cars
  • Vending machines and ATMs – placement in high traffic areas
  • Car washes – monthly unlimited membership plans
  • Laundromats – recurring customer use generates coins
  • Storage units – steady demand and monthly payments
  • Franchising – recurring royalties from franchisees
  • Ad revenue – ads placed on websites, apps, influencers
  • Subscription services – monthly boxes, software, memberships, newsletters
  • Equipment leasing – predictable scheduled client payments

Any business with recurring revenues or floats can become highly cash flowing with proper management.

Maximizing Cash Flow Velocity

Ways to accelerate cash flow speed:

  • Structure sales terms for upfront or progress payments
  • Get invoices paid immediately with auto-debit
  • Offer discounts for customers who pay quickly
  • Reduce sales cycle and administrative friction
  • Ship orders instantly versus wait times
  • Accept instant online payments vs checks
  • Eliminate refunds and returns that tie up cash
  • Minimize inventory that consumes working capital
  • Use just-in-time principles to reduce waste
  • Shorten collection times and watch AR diligently
  • Delay outflows by structuring favorable payment terms

Optimizing working capital improves cash flow return on investment.

Key Cash Flow Metrics and Ratios

Vital metrics for cash flow analysis:

  • Cash conversion cycle – Days to convert inventory and sales into cash
  • Current ratio – Short-term assets over short-term liabilities
  • Quick ratio – Most liquid assets over current liabilities
  • Net working capital – Excess of current assets over current liabilities
  • Operating cash flow ratio – Operating cash flow over current liabilities
  • Free cash flow yield – Free cash flow over market capitalization
  • Cash flow margin – Cash from operations over total sales revenue
  • Cash flow ROI – Net cash flow over total capital invested

These ratios indicate business liquidity, cash generation efficiency, and comparisons.

Tools to Measure Business Cash Flows

Ways to monitor cash flow performance:

  • Income statements – Review net cash from operations line
  • Cash flow statements – Directly presents operating, investing and financing flows
  • Cash budgets – Forecast future cash inflows and outflows
  • Current accounts – Check book balances regularly
  • Billing systems – Accounts receivable tracking
  • Bookkeeping software – Xero, QuickBooks, FreshBooks, etc.
  • Spreadsheets – Model and project cash flows
  • Bank reporting – Monitor statements and reporting
  • Analytics – Track sales, traffic, conversions to predict cash
  • Cash flow apps – Float, CashAnalytics, CashflowCafe, etc.

Automating cash data makes it easier to gain insights.

Tips to Improve Business Cash Flows

Suggestions to optimize cash flow:

  • Accelerate invoicing and collections
  • Only purchase essential inventory
  • Start lean and bootstrap growth
  • Maintain tight control on discretionary spending
  • Design compensation around cash flow goals
  • Refinance debt to reduce interest costs
  • Review pricing regularly and increase judiciously
  • Build data models to predict slow periods
  • Have lines of credit ready for flexibility
  • Assess if inventory, AP, or AR can be trimmed
  • Delay or sublease unused office space
  • Offer discounts for early or bulk payments
  • Use excess cash to repay debt or invest

Vigilant cash flow monitoring and discipline is required.

Cash Flow Risks to Avoid

Be cautious of:

  • Too rapid growth overextending cash reserves
  • High fixed overhead expenses and obligations
  • Poor visibility into future cash due to lack of data
  • Inaccurate demand forecasting and inventory waste
  • Delayed client payments or bad debt losses
  • Cryptocurrency price volatility if accepting coin payments
  • Expensive capital expenditures funded by debt
  • Seasonal slow periods if not planned for
  • Overspending personal salary and dividends
  • Poor unit economics and erosion of margins

Model scenario analyses to preemptively assess risks.

Best Financing for Cash Flow Businesses

Ideal financing options for cash flowing companies include:

  • Business lines of credit – Variable interest debt where you only pay on what is drawn
  • Accounts receivable financing – Funding based on outstanding invoices due
  • Equipment financing – Spreads payments over useful asset life
  • Merchant cash advances – Repaid as percentage of credit card sales
  • Bank loans – Competitive rates for term loans or SBA loans
  • Peer-to-peer lending – Borrower-lender matching platforms
  • Invoice factoring – Sell outstanding receivables for immediate cash
  • Angel investors – Funding via equity investors
  • Venture capital – Later stage equity financing
  • Bootstrapping – Reinvesting net cash flows

Match financing duration and amortization to cash inflows.


For entrepreneurs focused on consistent cash generation versus just one-time lump sums, cash flowing business models have distinct advantages. However, management discipline in cost controls, working capital efficiency, and cash flow velocity maximization is imperative to fully realize benefits. With proper monitoring and planning, cash flowing businesses can propel growth and provide living income for founders and investors. Evaluate your risk tolerance and skills to pick the best cash flow focused small business.

Frequently Asked Questions

What is considered a good cash flow for a small business?

Positive cash flow over $10,000 per month or over 10% of revenue is generally considered solid for small businesses. High growth startups may endure near-term negative cash flows if planned for.

How do you increase cash flow?

Strategies include accelerating collections, delaying outflows, reducing inventory levels, negotiating better payment terms, increasing prices, lowering COGS, and optimizing working capital efficiency.

What are the 5 types of cash flows?

The 5 main types are:

  • Operating cash flows
  • Investing cash flows
  • Financing cash flows
  • Net increase/decrease in cash
  • Free cash flows (operating – capital expenditures)

How do you evaluate cash flow?

Key metrics include cash conversion cycle, current ratio, quick ratio, operating cash flow ratio, free cash flow yield, cash flow margin, cash flow ROI, and assessing liquidity via cash flow statements.

What is the most important cash flow ratio?

Operating cash flow ratio helps quickly assess if a company generates enough cash from operations to cover current liabilities. Higher ratios indicate greater liquidity.

Which businesses have the best cash flow?

Subscription services, rental/leasing income, franchising royalties, and other recurring revenue models tend to provide the most reliable and predictable cash flows.

Is high cash flow good?

Yes, ample free cash flow indicates a company’s ability to cover obligations, invest in growth, reward shareholders, and provides greater financial flexibility. Market values cash flow consistency.

What is the #1 rule of cash flow management?

Closely monitoring cash inflows versus outflows to avoid risks of misalignment. Use tools to forecast future cash positions based on projections.

How do you fix low cash flow?

Solutions include reducing unnecessary expenses, improving collection processes, renegotiating vendor terms, increasing prices, chasing past due accounts, and potentially securing interim financing.

What happens when cash flow decreases?

Low cash flow inhibits a company’s ability to cover its expenses. It may lead to accumulating liabilities, default risk, insolvency, inability to grow, and potential bankruptcy. Proactive management is critical.


  • Sarah Teague

    Sarah Teague brings 5 years of professional writing experience to her role as content writer for Walletminded. In this position, Sarah creates compelling articles, blog posts, and other digital content that engage readers and promote the Walletminded brand. Before joining Walletminded, Sarah honed her writing skills as a freelance writer and ghostwriter. Her work included crafting blog posts and web content for financial services, technology, and healthcare clients. Sarah holds a bachelor's degree in English from Emory University, where she also served as editor of the campus literary journal. She continues to volunteer her time as a writing mentor for youth in her community. When she's not meticulously crafting content, you can find Sarah attempting new baking recipes and enjoying hikes with her dog. She also loves curling up with a good memoir.

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