Managing your money

Get Started: Managing Cash Flow for Your Business

25 January 2018
3 minutes read

Emma Doyle

Did you know that a huge 82% of businesses that fail do so because of cash flow problems?

And 54% of SMEs say that experiencing cash flow problems is the biggest obstacle to business growth?

Considering stats like these, it’ll come as no surprise that maintaining a healthy cash flow should be a priority for all businesses. And this month, we’re sharing just how to do it.

What is cash flow?

Your cash flow is difference between the amount of money coming in and going out of your business in a set period of time. And it’s hugely important, as the old business adage will vow: “turnover is vanity, profit is sanity, and cash flow is reality.”

“Having cash allows a business to operate,” says Clive Lewis, Head of Enterprise at the Institute of Chartered Accountants in England and Wales. “Managing your cash resources and making sure you have enough to meet your needs, such as paying wages, buying supplies and meeting your personal financial requirements, is absolutely critical.”

Keeping cash flow positive can not only keep business going, but also support you in investing in new products and accessing better supplier discounts. But you will need more than having lots of money coming in to keep it healthy, so it is essential that you give your business’ cash flow management the care and attention that it deserves.

Managing Cashflow

Knowing What's Coming In and Going Out

To manage your business’ cash flow effectively, you will need to monitor three main areas in your finances. These are:

  • What your customers and clients owe you; often referred to as your accounts receivable
  • What you owe your suppliers and the expense of any bills; or your accounts payable
  • And any shortfalls in business too

Keeping a clear, updated record of this information can allow you to see the financial state of your business at a glance. You may even consider hosting it as a document in the Cloud so that you and your team can access it wherever and whenever you need. You can find lots of cash flow templates online to help you do this too.


Recent research by American Express has found that, on average, small businesses spend more than £1m a year on internal expenditure such as staffing costs, rent, office equipment and supplies.

Jose Carvalho, Senior Vice President at American Express says that this significant investment highlights just how vital it is for SMEs “to have a solid grasp of their incomings and outgoings so they can plan ahead and meet these costs.”

Even if you don't spend near that amount, business expenses can still add up. So, once you have your account data together it’s time to put it to good use: forecasting your cash flow!

This means making a prediction on the amount of money that will be going in and out of the business, and the useable balance that you will be left with. Many business advisers will recommend forecasting your next six months of business but no further.

As Keir Thomas-Bryant, Accounting Content Specialist at Sage says “it’s better to be overly cautious than optimistic – that you, you’ll hopefully avoid nasty surprises.” This is because data and predictions are assumed be too vague further down the line and, as a rule, are likely to cause more problems than they will solve.

That said, do make sure that you know when your business will become profitable, or breakeven, regardless of the distance so that you can set a goal for your team to strive for and a target for projecting future cash flow.


Forecasting your cash flow can be particularly helpful if you run a seasonal business that has peaks and dips in trade over the course of the year.

With a hotel business fore example, you may make enough in the summer to last throughout the winter, whereas reatilers often rely heavily on the Christmas trade to carry you through the early quieter months each year. Whatever your sales pattern, make sure to be as realistic as possible with it in your cash flow forecast to support you in financial planning.

Accounts Receivable


Focusing on the money coming into your business, an important step to keeping cash flow topped up is to stay on top of your invoices and make sure your customers pay on time. As research from Direct Line has reported that within just one year, SMEs wrote off a shocking total of as much as £6bn in bad debt!

From the beginning, it is a good idea to set some firm payment terms to support this, and to make sure that you are direct and fair in all billing communications. Simple invoicing software, from providers such as Sage or QuickBooks, can be really helpful here for setting up reminders and deadlines on customer payments too.

Depending on the product / service that you offer, you could also consider charging an upfront deposit cost to level out your received payments and ensure completion on the customers’ side. You could even offer discounts to early payers, such as 5% off for paying within a week.

If you do find yourself subject to overdue payments, you may want to consider having a set process in place to follow these up; such as a reminder email, a call, and then a letter.

Payment Plans

Some businesses may also be able to regulate cash flow with payment plans or subscription services for their customers. For example, if you run a hair or beauty salon you could sell a set number of treatments per month / year for a fixed or discounted price.

This, if run via direct debit for example, can ensure that you have cash coming into the business at a predictable rate.

Accounts Payable

Stock and Suppliers

But of course, the money going out of your business will have an equally significant impact on your overall cash flow. And one of your main outgoing costs is likely to be purchasing stock.

Looking at your cash flow forecast and previous sales data, you will be able to mark when you will need to restock and by what volume. Anticipating expenses in this way will help your business to prepare for them effectively and avoid any shortfalls in cash.

You can also look to save additional funds by taking advantage of any stock opportunities that your suppliers run; just as Bahzad Yad, owner of convenience store Quick Stop Food & Wine has done to save money buying seasonal stock:

“When I’m buying stock, there are often special offers that I can’t afford to miss - especially in the run up to busy holidays like Easter,” says Bahzad. “Having access to finance allows me to buy more stock at better prices, and helps me to stand out with a wider variety of products on sale.”

As well as being smart about accessing stock, think about the stock you’re retaining too as holding less of it could free up cash to spend elsewhere in the business. Make a judgment call on the value your inventory holds and remove any excess by hosting an end of season sale or selling it in bulk to other local traders.

Building Cash Reserves

If possible, try to maintain some cash reserves in case of any shortfalls in sales or the rise of new business opportunities, such as discounted stock. This will put your business in a position of strength, and act as a cushion against any unexpected events.

If you are in need of additional finance to support your business, familiarise yourself with all of your options and make sure to consider the impact they will have on your continued cash flow growth.

Our Business Cash Advance is a more flexible way to fund your business as it takes repayments based on a fixed percentage of your daily customer credit and debit card takings; so you only pay us when your customers pay you. Click here to find out more.


Putting together a smart cash flow forecast for your business and making use of these management tips should ensure that “cash serves you - rather than the other way around”, so that you can continue to grow your business.



Five Rules For Managing Small Business Cash Flow – Xero

Managing Cash Flow Is Key To Success For Small Businesses – The Telegraph

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