Don’t underestimate the importance of cash flow as the lifeblood of the business

Cash flow is the lifeblood of any business. It’s a subject we’ve covered on numerous occasions and a recurring theme with businesses we deal with. In a recession or challenging economic climate, businesses are more careful in managing and monitoring cash flow – but when things are on-the-up, some business owners take their eye of the ball. This can be catastrophic.

Whilst a lot of cash flow management is in accounting functions that may seem laborious, it’s a vital activity.

Develop a plan for company expenditure – whilst it’s a given that all businesses should be keeping adequate accounts showing income and expenditure, there should also be a plan for expenditure in relation to business goals and growth. A growing economy can present opportunities that may seem too good to pass up, and business owners might be tempted to spread finances too thin to invest in new equipment, premises or staff to meet a demand – with a view to growing the business. However, this can be the downfall of many; sticking to a plan of what operating costs the business needs to cover, what can be invested into the business now and what can be put aside for the future is a wise move.

Commit to a monitoring and forecasting routine – a routine of diligent book keeping will underpin any analysis activity. Monitoring will come as part of a regular book keeping routine, and forecasting can be more accurate. Investing in a simple accounting software tool or solution will make life easier – but with many PCs coming with Microsoft Office software, Excel will be more than adequate for many. Keeping an eye on the financial state of the business in whatever format works for the owners to track key business metrics is crucial.

Keep a little in the bank – keeping a cash reserve is a sensible way to run a business to avoid the cash flow issue and ensure there is an emergency buffer if needed. Having enough to see through rough seas – around three to six months worth of cash to cover business running costs – is advisable.

Of course, there are ways to capitalise on business opportunities that arise by raising additional funding, rather than taking funds from the company coffers, and it’s always wise to explore these so that a real chance for growth doesn’t pass by.

For businesses wanting to outsource finance functions such as monitoring, forecasting and preparation of management accounts – as well as a host of other functions – our Board Support service is a fixed fee solution. See our case studies section to see how this has helped other businesses grow and flourish.