Managing cash flow in your business

16 April 2024

Managing cash flow in your business




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If you look at basic cash flow within many businesses, you’d be surprised how few business owners implement really proactive cash flow management.

Cash flow management is not about looking at historical figures but about forecasting, running projections, inventory management, calculating revenue, identifying expenses, and actively managing cash flow through management reporting.

In this blog we'll look at why cash flow management is important, the signs and consequences of having cash problems and how to achieve successful cash flow management.

Struggling with cash flow? We can help. Get in touch today.


Why is positive cash flow management important?

You'll often see the phrase 'cash flow is the lifeblood of your business', and it's absolutely true. Effective cash flow management ensures your business has enough money to cover things like debt, supplier invoices, payroll, etc., even when the worst happens.

Often bigger businesses will have cash reserves to help them get through bad times. This is often not always the case for medium or small businesses, meaning any sort of crisis or late payments by customers have a huge impact.

In some cases, business owners are left with no choice but to use personal funds to keep their business afloat. For many businesses, cash flow management can be the difference between the success and failure of the business.

A healthy cash flow is critical for your business growth when it comes to things like your supply chain, credit rating, line of credit, capital expenditure projects or attracting future investors to fuel growth.


Signs you have cash flow problems

Having proper cash flow management in your business will allow you to spot potential cash flow issues early and avoid larger or longer-term financial difficulties.

So, what are the warning signs of poor cash flow?

You are regularly finding you don't have enough cash to cover operating expenses

It may sound obvious, but it often still doesn't lead to long-term or positive action to manage cash flow effectively. You need to know what money is coming in and when and then tie in payment terms on your business costs to ensure that you can pay supplier invoices and wages, etc, on time.

If you’re struggling to meet your financial obligations every month, then it’s time to implement more formal financial management and cash flow management. This could include things such as improving your payment terms, producing cash flow statements, renegotiating leases and contracts, chasing bad debts more effectively or stopping unnecessary expenses to improve your cash flow.

Your business is making late or missed payments

If you have a pile of unpaid invoices that you're struggling to clear, then this shows you have a cash flow problem. Whether late or missed payments are a result of poor admin or no cash, they can lead to a low business credit score, unhappy suppliers, supply chain issues and your ability to secure finance and keep retaining suppliers.

Your fixed costs are increasing

If your fixed costs increase and your revenue doesn't, it may ultimately lead to a cash flow problem. Maybe you've taken on new people or premises, but the revenue isn't yet increasing. Often rapid growth can cause this type of cash flow problem.

To sustain this growth, maintain ready cash and avoid cash shortfalls, business owners need to monitor cash reserves more closely, look at how to finance such growth and adjust when necessary. This is where a cash flow forecast will help in managing your cash flow through times when costs may increase in preparation for growth, but revenue hasn't yet increased in line with the cash outflow.

Your working capital is low

Working capital is a critical indicator of a business’s short-term financial health. If your business has low working capital, then you need to assess how you can take action, for example, improving inventory management, reducing unnecessary expenditure or securing additional financing.

You are having to use personal credit lines to keep the business afloat

When business owners have to continue to put personal funds into a business to keep the business running, or they have to look at tapping into personal credit cards or using their home equity, then it's time to assess if the business is still viable. Sometimes when a business is in the early development stage, it is normal for business owners to help fund the initial growth of the business, however if they still need to do this when the business is more established, it could be a warning sign.

You have a negative cash flow

Many owners find that their business cash flow can fluctuate as they grow and as they begin to invest for future growth. Negative cash flow may be down to something such as loss of production due to a supply issue, lack of funding capital, increases in inflation or bad debts mounting up.

Trying to plan ahead for your company's cash flow peaks and troughs can help you avoid large negative cash flow issues. Other things to consider include focusing on minimising risks in the business, chasing bad debts and managing your accounts receivable, which will undoubtedly help with future cash flow.


How to manage your cash flow effectively

There are a variety of ways to manage cash flow effectively in your business. Here are just some of the areas to focus on.

Tracking and monitoring

Better cash flow management means tracking the money coming into your business and monitoring it against outgoings such as bills, salaries and overhead costs.

Our top tips for tracking and monitoring cash flow include:

  • Track cash inflows.
  • Monitor cash outflows.
  • Create cash flow projections.
  • Regularly review accounts receivables and accounts payable.
  • Including tolerances and simulations in your cash flow projections so you can see how different factors affect your cash flow performance

Get into a routine of doing regular cash flow analysis to spot any issues before they arise.

Reviewing company expenses

Take a close look at your expenses and business costs to see where there are opportunities for saving money. This could include things like renegotiating supply contracts, cancelling unnecessary subscriptions, limiting travel and entertainment, or negotiating discounts. Additionally, analysing your cash flow statement can reveal areas to improve cash flow generation and optimize how you use your existing funds.

Regular cash flow forecasting

Making regular and accurate cash flow projections is one of the most important things you can do to avoid a cash flow crisis.

Having regular cash flow forecasts can help you make better business decisions and manage your business's cash flow.

A cash flow forecast needs to consider things such as:

  • Projected costs.
  • Likely price increases to your business, such as in raw materials, operating costs, minimum wage increases etc.
  • Customer price increases you may be planning.
  • Projected sales.
  • Growth projections.
  • Projected payment timings.
  • Expiration of leases and loans

Have a safety net

Having a safety net for anything unexpected happening is part of good cash flow management. If your cash flow stops flowing, you need to have a contingency plan.

Many people think building up a cash reserve is the only safety net to have. Often, businesses are told to hold a six-month + cash reserve, and this will certainly act as a good safety net should problems occur. Your six month cash reserve should focus on your likely fixed and variable expenses that will need covering should your sales drop to nothing.

Whilst building a cash reserve is one way to create a safety net, you can also look at financing and lines of credit as another type of safety net for your business. You need to understand what your ability is to raise cash from other sources if you need to. For example, you could look at loans, invoice factoring, debt financing and credit cards should something unexpected happen in your business.

Insurance is another element of a safety net for your business. For example, taking out key person insurance can help to recoup any financial loss should something happen to key stakeholders or team members.

Furthermore, if your business is part of a group, is financial support available from a group perspective to assist with the cash flow of your business?


How can Haines Watts help?

At Haines Watts we can help with all areas of cash flow management, from advising on the best online accounting software to helping you understand a cash flow statement, cash flow forecast, tips on how to improve your cash position, financing cash flow and tackling cash flow problems. Contact us at our offices in Chester, Wirral or Liverpool.



Even a profitable business can suffer from cash flow problems due to bad management. Good cash flow management will help you to:

  • avoid running out of money
  • make informed business decisions
  • identify potential problems early
  • improve profitability

avoid your business failing due to poor cash management.


Frequently asked questions about managing cash flow in your business

How can I improve short-term cash flow problems?

  1. Chase your debts
    Sounds obvious right? But many business owners put off chasing debts or don't have someone specific to do this. Pick up the phone, speak to customers and ask them why they haven’t paid and when they’re going to pay. Work with your customers to ensure smooth payment of your invoices.
  2. Don’t rely on your bank
    When your bank won’t extend overdraft facilities, talk to us about alternative ways of raising cash through areas such as funding and asset finance.
  3. Consider factoring or invoice discounting

These can give you an agreed % of the invoice value immediately – ask us about how to make best use of factoring. Alternatively, you could offer early payment discounts to some customers.

  1. Look for other lines of credit

Consider bank loans, overdrafts, credit cards, factoring, invoice discounting and debt financing.

How do I improve long-term cash flow?

  1. Debtor management
    Learn how to manage debtors nearly due, due or overdue.
  2. Issue invoices promptly
    It gets your invoices in a customer’s system more quickly.
  3. Cash flow forecasting
    Predict the peaks and troughs in your cash flow. This helps you to make better business decisions, plan borrowing or know when surplus cash is available for growth.
  4. Consider asset re-finance or sale & leaseback
    We’ll help you use your equipment assets to release cash. Find out more about our funding and asset finance services.

What tools can businesses use for cash flow management?

Your online accounting software can provide valuable tools for cash flow management. Major online accounting software brands like Xero are designed to track business incomings and outgoings, meaning the software can calculate projected cash flows for you. Software can link directly to your bank account for bank reconciliation and real-time reporting. A cash flow dashboard can show how cash balances will rise and fall in response to expected transactions.

There is also a plethora of specialist cash flow management tools on the market that also bolt onto accounting software to help you to better manage your cash flow. Speak to us for advice on the best systems.

How often should businesses review their cash flow statements?

Analysing financial statements, including the profit and loss statement, balance sheet, and cash flow statement, should happen at least every month. This enables business owners to monitor the company's progress and stay on track towards goals. Accounting software can allow business owners to review their figures more frequently with real-time data at their fingertips to monitor cash flow more closely.