Guide

Managing your cashflow

Last updated: 7 July 2017

Cashflow management - the basics

Managing your cashflow is vital for business survival and growth. Every business needs cash available in order to pay their bills and expenses on time, so it's important to balance the timing and amount of money flowing into and out of your business each week and month.

Cash is the amount of money available to your business, including coins and notes, money in your bank account, any unused overdraft facility, and foreign currency and deposits that can be quickly converted into your currency.

To manage your cashflow you should:

In order to make a profit, most businesses have to produce and deliver goods or services to their customers before being paid. So it's essential to control your cashflow so that you always have enough cash available to pay your staff and suppliers before receiving payment from your customers. If not, you'll be unable to meet your customers' requirements or receive any profit.

It's important not to confuse your cash balances with profit. Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or a specified trading period. You may forecast a good profit for the year, yet still face times when you are strapped for cash.

However, having a lot of cash in your bank account may not always be the best thing for your business' finance. Consider moving spare cash to another account with a higher interest rate, or using it as capital for short-term investments. Choosing the right bank account(s) for your business is very important. Consider seeking professional advice from your bank, accountant or financial adviser.

Cashflow forecasting enables you to predict peaks and troughs in your cash balance. It helps you to plan how much and when to borrow and how much available cash you're likely to have at a given time. Many banks require cashflow forecasts before considering a loan.

Effective cashflow management is critical to business survival. It's important to reduce the time gap between expenditure and receipt of income to ensure you always have the necessary cash to pay for your day-to-day business costs.

Managing your cashflow
Cashflow management - the basics