“Cash flow is the lifeblood of any business.”
You’ve probably heard that old chestnut before…it’s practically as old as money itself. But clichés stick around for a reason: they’re usually true. And in this case, painfully so. Because when you’re running a small business, cash flow isn’t just important—it’s everything.
It’s what determines whether you can make payroll, cover your bills, or take on new opportunities. It fuels your decisions, your strategy… and yeah, your stress levels.
But here’s the thing most business owners don’t hear enough: Cash flow isn’t just about how much money you’re making—it’s about how that money moves.
Because even when you’re turning a profit, timing is everything. Can you invest in that new hire? Is it safe to upgrade your equipment? Will a late client payment throw everything off and leave you cursing whoever invented Net-30 terms and biweekly pay cycles?
Answering those questions requires visibility, and visibility starts with tracking the right metrics—the kind that cut through the chaos and help you see what’s really going on.
Here are seven of the most important ones every business owner should know.
1. Operating Cash Flow (OCF)
How much cash your business actually generates from its core operations.
Operating Cash Flow is a snapshot of whether your day-to-day business is actually bringing in real, usable cash…or just looking good on paper. Think of it as your “how’s the business actually doing?” metric. Unlike net income (which includes all kinds of accounting magic), OCF filters out financing and investment activity to focus on the money your core operations are pulling in.
Why it matters: If OCF is consistently negative, you’re burning cash just to keep the lights on—even if your income statement says you’re in the black. That’s a red flag worth catching early.
Watch for: Seasonal dips, delayed receivables, or bloated expenses. These can quietly chip away at your cash position while the topline still looks healthy.
2. Cash Conversion Cycle (CCC)
How long it takes to turn investment into cash in hand.
The CCC measures the time between when you spend money (on inventory, materials, or services) and when you get paid. The shorter your cycle, the better. It’s one of the clearest ways to spot inefficiencies in how your cash flows through the business.
Why it matters: A long cycle can quietly choke your growth—even if your margins look fantastic on paper. If you’re paying out on day 30 and not getting paid until day 60, you’re basically running a bank (for your customers).
Watch for: Slow customer payments, excess inventory, or lags in invoicing. These drag the cycle out and put a quiet squeeze on your cash flow.
3. Burn Rate (and Runway)
How much cash you’re spending each month—and how long it will last.
Burn rate matters most when you're in growth mode or not yet profitable. Basically: how fast are you burning through your cash stash, and how long before the fire reaches the bottom of the barrel?
Why it matters: Whether you’re hiring, expanding, or just trying to ride out a slow quarter, knowing your burn rate helps you plan ahead instead of panicking later.
Watch for: An uptick in spending without a clear ROI. If your expenses are climbing faster than your revenue, it’s time to zoom out and reevaluate.
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4. Free Cash Flow
What’s left after you’ve paid for everything you need to operate and invest.
This is the “can I breathe a little?” metric. It tells you what’s left once you’ve paid the bills and reinvested in the business. In other words: is there money left for that raise, bonus, or—dare we say it—vacation?
Why it matters: You can be profitable on paper and still have no free cash flow—especially if you’re constantly reinvesting. That’s survivable in the short term. Long term? Not so much.
Watch for: Growing revenue without growing free cash flow. That’s a flashing yellow light for unsustainable growth.
5. Net Cash Flow
The difference between all the cash coming in and all the cash going out over a period.
Net cash flow gives you the big-picture view: are you bringing in more cash than you’re spending? It’s simple, but powerful when tracked consistently.
Why it matters: Sudden swings in net cash flow—up or down—can point to major changes, risks, or missed details. Tracking it helps you spot trends you might otherwise overlook.
Watch for: One-off spikes (like loan deposits or major purchases) that make your monthly cash flow look healthier—or scarier—than it really is. And if your bank balance keeps surprising you? Time to dig into this one.
6. Cash Flow Forecast Accuracy
How close your predictions are to reality.
This one won’t show up in your accounting software, but it might be the most honest reflection of how in control you actually are. Close forecast? You’re flying the plane. Big surprises every month? You’re riding in the cargo hold.
Why it matters: Good forecasting doesn’t require perfection. But it does require consistency, and the ability to course-correct before things go sideways.
Watch for: Surprise expenses, missed receivables, or shifts in timing. If your actuals keep straying far from your forecast, your assumptions (or your visibility) may be off.
7. Debt Service Coverage Ratio (DSCR)
Can you comfortably cover your loan payments with your operating income?
Even if you’re making payments just fine today, a low DSCR tells a different story: one where you’re stretched thin and one surprise away from sweating that next loan installment. This ratio shows lenders (and you) whether your business has the breathing room to take on or maintain debt.
Why it matters: A strong DSCR gives you more options when you need them, like applying for a loan or negotiating terms. A weak one can put you in a corner fast.
Watch for: Ratios below 1.0. That means your cash flow isn’t enough to cover debt obligations on its own—you’re leaning on savings, luck, or both.
Wrapping it up: Know where you stand
You don’t need to memorize these metrics or build a wall of dashboards. But you do need to know where your cash stands, where it’s headed, and what might be quietly draining it.
Tracking a few key metrics consistently—especially the ones that matter most to your business model—can help you move from reactive to proactive. And that shift is what turns day-to-day chaos into long-term control.
At Relay, we believe cash flow clarity should be built in—not something you chase down every week. That’s why we’re building tools that make it easier to monitor your cash position, spot problems early, and make smarter financial decisions with confidence.
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Relay is small business banking that puts you in complete control of what you’re earning, spending and saving.
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Relay is a financial technology company and is not a bank. Banking services provided by Thread Bank, Member FDIC.
