INTRODUCTION
Why is cashflow so central to good financial management? Here's our plain English guide.
What is cashflow?
In the most basic terms, this is the process of cash moving out of the business (cash outflows), and cash moving into the business (cash inflows).
The ideal scenario is to be in a ‘positive cashflow position’.– i.e. more cash is coming into the business than is going out.
When you are in a positive cashflow position, the main benefit is that you will have enough cash available to fund your daily operations and debt repayments etc.
On the flip side, if you are in a negative cashflow position, this can be a red flag that the business is facing some financial challenges.
Further funding may be required in the form of a bank overdraft or owner savings, and some serious cost-cutting and/or revenue generation may be needed.
HOW DOES CASHFLOW AFFECT YOUR BUSINESS?
Not having enough cash is one of the biggest reasons behind businesses failing. So, it’s absolutely vital that you keep on top of your business’s cashflow position.
Five key areas to focus on include:
Monitoring your cash inflows and outflows – this means regularly tracking cash moving in from sales, loans and investments, as well as managing cash moving out to pay for expenses, purchases and debt repayments.
Managing your account receivables and payables – efficiently managing the timing of your customer receipts and supplier payments helps to deliver stable cashflow that’s easier to predict and keep on top of.
Getting proactive with your budgeting and forecasting – creating realistic cashflow budgets and forecasts helps you predict your future cash position. By anticipating your future cash needs, you can actively plan for potential shortfalls or surpluses.
Being in control of your stock/inventory – having excess stock in your warehouse ties up cash. So, it’s a good idea to optimise your inventory levels and to only manufacture/order the items you need.
Investing in your cash reserves – by keeping emergency cash reserves in the bank, you have funds to handle unforeseen cashflow issues or sustain your operations during lean periods. This makes your whole cashflow position more stable.
HOW CAN MOORE MARKHAMS HELP YOU WITH CASHFLOW MANAGEMENT?
Positive cashflow is the beating heart of your business. Working with a good adviser will help you keep on top of maintaining a healthy, stable cashflow to keep driving your business forward.
We’ll help you keep accurate records, track your inflows and outflows and deliver the best possible cashflow position for the business.
Get in touch with one of our expert business advisors to chat about improving your cashflow.