Dealing with cash flow issues is one of the main causes of stress and worry for a business owner, and yet many don’t realise cash is their biggest problem. There’s a whole lot of noise about becoming more profitable, and that’s important – but it’s cash that will be your downfall. 

Simply put, ‘Cash Flow’ is the flow of cash coming in and out of your business. 

A positive cash flow = more money coming into the business than going out

A negative cash flow = more money going out of your business than coming in

As Accountants, we use the term ‘cash flow’ a lot. It’s a big part of our vocabulary because it’s our job to help our clients maintain a healthy cash flow with good bookkeeping, regular reporting and good systems. Without cash, your business is in trouble, even if you appear to be profitable. 

We wanted to talk about cash flow today, because it’s one of the most important things to keep an eye on in your business. Because you might be feeling the pain of a cash flow problem, but no one’s telling you how to diagnose it and cure it. 

You can only solve a cash flow problem when you know your financial position

Ensuring you are cash flow positive depends on good cash flow management. And good cash flow management is only possible when you know (and have access to) your key numbers. You can’t make predictions for the future when you don’t know where you stand in the present.

So managing your cash flow effectively means going back to the basics:

  • Know what your bank balance is
  • Know what payments you are expecting to receive
  • Know what you are expected to pay out in essential payments

This is one of the core reasons we recommend Xero. You have access to these key numbers at your fingertips, and can use them to create forecasts and plan out your goals.

There are also some brilliant apps that connect with Xero, which can help you manage your cash flow day to day. 

  • Float – excellent for cash flow forecasting and scenario planning. 
  • FUTRLI – Another forecasting tool, Future VAT, payroll, invoices, bills, expenses and cash – all covered in one simple click.
  • Fluidly – Forecasting and scenario planning with the addition of tailored business funding and debtor chasing
  • PwC’s Cashflow Coach – An overview of your current cash position with smart alerts to help you track movements in real time. 
  • Spotlight Reporting – Visual dashboards for reporting, forecasting and budgeting your cash. 
  • Chaser (UK) – Credit control automation to help you chase payments and get paid faster
  • Figured (Australia and New Zealand, United Kingdom) – Budgeting, production tracking, and forecasting tool specifically for the farming industry. 
  • Xavier (UK) – A toolkit for accurate data, so you have cleaner accounts for forecasting

If you’re not using Xero yet – work out your numbers on a weekly basis for the next 6-12 months. Consider the months you know you’re always more tight on cash. We work with tourism and leisure clients, who recognise the first quarter of the year is always the tightest – but for other industries there may be regular trends you’re aware of that impact you financially. 

Once you’ve got into the habit of regularly tracking your numbers, cash flow forecasting can help you establish an actionable plan

A cash flow forecast can allow you to plan for a rainy day, as well as for your blue sky scenario. Forecasting can show you when and where a cash gap may appear. This forewarning means that you can arm yourself against a cash crisis by tightening up expenses, securing finance or invoicing earlier.

With an accurate forecast you will be able to pinpoint times when you have a surplus of cash that can be reinvested for growth. We do scenario planning with our clients, so they can model out the impact of different decisions on their cash. This can give them clarity on the impact of hiring, opening a new location, taking on a new project or can even be used in contingency planning for a ‘worst case’ scenario.

You can read more about the two ways to create a cashflow forecast in this blog.

There may be some internal changes you can make to manage cash flow better

Having access to your key numbers shows you how your business is performing. But further to that, it allows you to make changes in the business, whether temporary or long term, to survive and thrive. 

Get smart about your invoicing

The faster you can get an invoice out the door, the faster the possibility of getting paid. There’s tonnes of software out there designed to help you generate invoices quickly and seamlessly, but Xero alone makes it super simple. It works anywhere, at any time, on any device – meaning you can invoice clients the moment the job is done. You can make it easy for clients to pay you by setting up instant payment features and you can customise your invoices as much as you like. 

Create systems so you can stay on top of payments

One of the biggest cash flow issues business owners face is not getting paid on time. If you haven’t already, set payment terms that make sense for your business – and make sure you communicate them! If 30 days is too long, set payment terms of 14 days. You don’t need to stick the traditional terms – work out what’s best with your clients and your cash flow in mind. 

Set up some kind of payment chasing system, whether you have someone responsible for it-house, get support from your Accountant (we can help), or use an app like Chaser. Automating this process can be a God send for two reasons: it means your clients get the gentle prompts they need with minimal input from you, and takes a task few enjoy off your plate. 

Cut costs where necessary

If you haven’t reassessed your expenses in a while, check in on them. It’s good practice to do this regularly, because you may be paying more than you need to be in some areas. Look at your utility spends and overhead costs. Could you get a better deal than you have currently? Are you paying for technology you’re not really using? You may even be able to rearrange payment plans, so cash flow is spread out more evenly over the year. Some of these seemingly small changes can have a big impact. 

If it all feels overwhelming, just start with those key numbers

There’s a lot of information to absorb here, and we could continue! We could talk about how to raise cash and get funding. But if you’re in a cash flow crisis, or feel you’re on a brink of one, you want a simple starting point to help you out of it. 

It really does start with knowing those key numbers. If you don’t know how much money is coming in and out of the business, talk to us. We can help you figure out the basics and more. Be reassured this is one of the trickiest parts of running a business, for most business owners. You went into business to do what you love, and what you’re good at, and it’s likely you didn’t have someone teaching you about cash flow management on day one! Let’s correct that. 

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