Managing your cash flow

Managing cash flow is a vital part of running a successful business, even more so in the current economic climate and uncertainty. Often there is the misconception that managing cash flow simply means keeping track of how much money enters and leaves a business, but there’s actually more that goes into it.

Some businesses are more likely to have cash flow problems than others. As a business owner, you may be wondering if you are likely to run into these problems.

Cash flow forecasting is an incredibly valuable tool that helps you anticipate issues, plan for days when your cash flow is limited, and show the bank that you are prepared.

Below we share some tips on how to manage the cash flow in your business.

Perform a health check

The first step in in understanding and predicting cash flow is to perform a health check on your accounts. This involves looking at your latest profit and loss statement and determining whether your income is sufficient enough to cover your expenses. If your profit is falling shorter than your expenses and your cash flow is slowing, it may be time to do something.

Identify issues before they happen

Most businesses go through slow periods. A seasonal business, for example, will have decreased income during the off-season compared to during the on-season. There can be less obvious peaks and valleys in your income, though, that you have to prepare for ideally in advance of them arising.

A cash flow forecast can help you monitor your day-to-day cash flow and anticipate when times will be slow before they arise. By anticipating when cash coming into your business might be light, or when you might have to spend more than you’re accustomed to, you can avoid a cash crisis.

By examining your cash flow over the previous years and forecasting your future cash flow, you can better anticipate financial cycles and how they may affect your bottom line.

Plan for tougher times

It’s tempting to spend money when you have a lot coming in. Your business may need new equipment or maybe you want to give all your employees a raise or a bonus. That’s a great thing to do, but it’s only helpful if it doesn’t put your business in jeopardy financially. Look at where cash could be tight and where you could save more.

Cash flow forecasting is a great reminder about how your bank accounts will look during tougher times, so you can make important decisions about when to spend your money and when to save it.

If you know a slow period is coming up, it might be better to save your money for now. If you can anticipate your slow period, you can plan major purchases and bill payments around it, to stretch your cash further. By conducting forecasts you’re less likely to be surprised by a sudden crisis.

Final thoughts

Forecasting your cash flow gives you a clearer picture overall about your business and how the money moves into and out of it. It provides important insight into your company’s financial health.

If you haven’t completed a forecast, it’s a good idea to get started now so you have a better understanding of your company’s finances and you can prepare for the future.

How we can help

We are able to assist if you need help to produce forecasts for general trading purposes, or for a specific reason. For example if you are considering a new product or service line and want to look at the best, mid or worst case scenario and how this will affect your cashflow.

If you would like to discuss any cashflow pressures and how you can better understand the cash cycle of your business please get in touch with a member of our team on 01903 234094.