Plain English guide to cashflow
If cashflow is king, forecasting is queen - and making informed estimates doesn't have to be complicated.
Give AKW a call, and we'll help you create a detailed profit and cash flow plan that is easy to understand and will keep you on track to go even further.
Last reviewed August 2023
Why is managing cashflow important in financial management?
Cashflow refers to the movement of money in and out of your business over a specific period. In simple terms, it's the process of cash going out of your business (cash outflows) and cash coming in (cash inflows).
It's ideal to have a positive cashflow position where more cash is coming in than going out. This allows you to have enough cash to cover daily operations and debt payments.
PRO TIP:
Send out invoices promptly - It's crucial to manage your debtors well, so make sure you send out your invoices quickly. Clearly outline your payment terms and consider offering discounts for early payment.
On the other hand, a negative cashflow position indicates financial challenges, and cost-cutting or revenue generation is necessary to address the issue.
How does the flow of money affect your business?
One of the main reasons companies fail is because they don't have enough readily available cash and having a steady stream of cash is what keeps your business running smoothly. But when you're juggling numerous tasks, it's easy to overlook the importance of cash flow.
PRO TIP:
Make payments easy - Provide your customers with convenient payment options such as mobile, online, credit card, or modern point-of-sale systems. This way, they can easily pay you without any hassles.
Here are five important areas to focus on:
Monitor your money: It's important to regularly keep track of your money coming in and going out. The money you receive from sales, loans, and investments, as well as manage your expenses, purchases, and debt repayments.
Manage your account receivables and payables: Efficiently handling customer payments and supplier payments will help balance your money flow and provide more predictable and manageable cash flow.
Plan ahead: By creating realistic budgets and forecasts, you can anticipate your future cash position by mapping out expected income and expenses. This will help you stay one step ahead and make informed decisions about your finances.
Control your inventory: Holding excessive stock ties up cash in your warehouse. It's wise to optimise your inventory levels and only manufacture or order items as needed on a day-to-day basis.
Build up emergency cash reserves: Having cash reserves in the bank allows you to handle unexpected cash flow issues or sustain your operations during slow periods. This helps make your overall cash flow position more stable.
PRO TIP:
Embrace technology - Say goodbye to paperwork and embrace cloud accounting. It's a more efficient and organised way to handle your financial records.
How can AKW assist you with managing your finances?
Positive cash flow is essential for the success of your business. By working with our knowledgeable advisors, we can help you maintain a healthy and stable cash flow that supports your business objectives. We will assist you in setting up the right tech, keeping accurate financial records, tracking your money coming in and going out, and ultimately achieving the most favourable cash flow position for your business to grow.
Contact us to discuss how we can help you improve your cash flow situation.
