You should make sure your cash flow is managed and organised. This will ensure your business has the funding it needs to keep trading. It also helps you make the most of your business opportunities to grow.

It is important to keep a careful eye on your cash position at all times. You should keep tight control of it and know how to deal with any potential shortfalls. Before they become a problem.

What is cash flow?

Cash flow is the balance of money which flows in and out of your business. It is the payment of money, as opposed to what is owed to you by your debts or creditors. It depends on what industry you’re in as you could have limited cash flow. It also depends on how well you run your business.

Cash flow forecasting

The more warning you have of cash flow peaks and dips, the more time you have to deal with them. Accounting software makes it easier to prepare budgets and forecasts. Preparing budgets can show the level of sales and profits you expect to achieve, and the costs involved in doing so. You should organise monthly cash flow forecasts. You can then look ahead one year and update your forecasts at least monthly. Send regular management accounts to the bank make sure you include your budgets and forecasts.

Using the forecasts

For your business, you should regularly monitor your performance against budget and cash flow forecast. You should do this at least once a month. By comparing your performance with the budget, you can quickly judge whether sales and profits are going to plan. Check you will have enough cash before taking on large financial commitments. This includes major new orders. You should develop systems that warn you of problems. This is because you need to know as soon as possible if:

  • Leads, orders or sales fall below a certain threshold,
  • Planned sales will be later than forecast,
  • If a substantial customer stops buying from you