How to manage your cash flow

How to manage your cash flow

You will be familiar with the term ‘Cash is King’. When you run your business the most important measure is your cash flow, but what does this actually mean.

Cash flow is about managing how much money comes into your business and how much is going out.  For a company to be successful and to grow you need to aim for positive cash flow, i.e. more coming in than going out.

Just looking at your Profit & Loss account isn’t going to help you manage your cash flow as you need to factor in much more. For example the time it takes to get money in from when you have made a sale and when you have to make payments can have a significant impact.

Here we have outlined a few ways in which you can manage your cash flow more effectively; it is essential to have an accountant that can advise you, in addition keeping your accounting processes simple will make a big difference as well.

Tips to manage your business cash flow

1. Monitor your cash flow – You need to know how much money is in the business at any given time. It’s useful to monitor your cash flow either weekly or monthly. This helps you to keep on top of your income and outgoings. If you use accounting software then you can track payments and receipts more easily.

2. Set payment terms for clients
– Decide on realistic payment terms for all invoices sent out. You can ask for payment within 30 days or in some cases businesses set shorter time scales such as 14 or 7 days. As long as the client is aware of your payment terms upfront, this shouldn’t be a problem. Don’t forget always invoice as soon as the work has been completed, by delaying this it will take even longer to get money into the business.

3. Offer incentives
– It may be beneficial to offer a discount if a client pays early, this can help with revenue into the business. If you have clients on a retainer, you can set up a standing order or direct debit and ask for payment on a fixed day each month. Make it as easy as possible for clients to pay you.

4. Managing your payments
– It’s important to pay all your bills on time. Check the creditor's payment terms and pay them when required, not early unless you are going to receive a discount for making early payments.

5. Keep your expenditures down
– Keep reviewing your monthly spending, where can you cut costs or cash going out of the business. Don’t make commitments which will increase your expenditure without planning where the funding will come from, for example, if you are taking on employees ensure you have enough income to cover all salaries.

6. Build a reserve
– This is often the key to managing your cash flow and the one tip that we would recommend you start immediately. If you are VAT registered, then you know you need to pay your VAT bill every quarter. Ideally, you should be putting aside the VAT each month so that you have the funds available. The same applies to paying your tax bill. If you complete your self-assessment return early in the year, you will know how much you owe in January and July the following year. This helps you to save during the year so that you can pay on time and not risk any penalties. Also, as you know running a business has many unexpected expenses, for example, if your computer breaks or you need to replace a piece of equipment, do you have the funds you can draw upon? If not then start building a reserve.

These are a few of the ways that you can start to improve the way you manage your cash flow. If you would like more advice, then please do contact us by calling 0115 956 9452 or email This email address is being protected from spambots. You need JavaScript enabled to view it.


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