Managing Cash Flow

Managing Cash Flow

Cash is the oxygen for any business and so the saying 'cash is king' has never been as reinforced as it is during an economic downturn. 


With this in mind, the most basic but best business practice any entrepreneur can implement to ensure survival and even success through the credit crunch is maintaining a healthy cash flow. It won't guarantee you a fortune but cash flow management can 

• unlock capital, 
• transform your bottom line and,
• safeguard your future in uncertain times. 

Cash flow is essentially the measure of a business' ability to pay its bills on time and on a regular basis. Therefore, as part of managing your cash, the inflow and outflow of cash needs careful monitoring. Be fully aware of how much you spend and for what, and track your VAT and make accurate returns.


This can be achieved by making sure all aspects of accounting are in order and effectively managed. So keep on top of your bookkeeping right from the start, otherwise you risk forgetting crucial costs or even worse failing to invoice a customer. 


Don't miss payment and tax deadlines to avoid paying fines and save time and money by scheduling recurring invoices and purchases.

Regularly look at your relationships with banks, suppliers and customers and check if you are fully aware of all payment dates and their terms.

Investigate if there is anything that could be modified to help you maintain a healthy cash flow, such as moving key dates and adjusting payment terms. Ensuring customers pay on time or asking them to do it sooner, can improve everyday cash flow as can asking for extended credit terms with your own suppliers. 

Other ways of improving cash flow include ordering less stock but more often and considering leasing fixed assets or getting them on hire purchase rather than buying them outright.

An important aspect of cash flow management is identifying potential cash flow problems before they occur. This can be achieved by forecasting peaks and troughs in your cash balance and keeping an eye on market conditions. 

Cash flow forecasting also helps you to plan borrowing and tells you how much surplus cash you're likely to have at a given time. Many banks require forecasts before considering a loan.

Underpinning all this best practice should be a way of seeing what money is coming in and what is going out, and making sure there is always more flowing in than the latter. This calls for processes to monitor and track how your finances are doing, as well as help you prepare your cash flow forecast, allowing you to update your projections if there's a change in market trends or your business fortunes. This doesn't always require an experience accountant. With the right support and processes, you can operate more efficiently and increase productivity, which will be essential when trying to survive and succeed during these turbulent times.