Guide

Managing your cashflow

Last updated: 14 September 2017

Cashflow management

Managing your cashflow is important if your business is to survive and grow. 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. This includes:

  • coins and notes
  • money in your bank account
  • any unused overdraft facility
  • foreign currency and deposits that can be quickly converted into your currency

To manage your cashflow you should:

Profits

In order to make a profit, most businesses have to produce and deliver goods or services to their customers before they get paid. So it's important to control your cashflow so you always have enough cash available to pay your staff and suppliers before receiving payment from your customers. If not, you won't be able to meet your customers' needs or get 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. This is 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 don't have any cash.

Bank accounts

Having a lot of cash in your bank account may not always be the best thing for your business's finances. You should think about moving spare cash to an account with a high interest rate. Or using it as capital for short-term investments.

Choosing the right bank account for your business is very importantand you should get professional advice on this from your bank, accountant or financial adviser.

Forecasting

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 helps businesses to survive. It's important to reduce the time gap between expenditure and receipt of income and make sure you always have the necessary cash to pay for your day-to-day business costs.

Managing your cashflow
Cashflow management