Why is Cash Flow so Important?

Money naturally flows in and out of your business. This is called cash flow.

A positive cash flow is when more money is coming into the business than going out which means a negative cash flow is when the company is spending more than it can bring back in.

Keeping an eye on these numbers is really important since it doesn’t take much for a positive cash flow to turn negative. Once this happens, generating the revenue to cover the loss in such a short space of time is very difficult. Being prepared for situations like supply chain issues can help businesses from falling into the red.

A business owners’ enthusiasm can sometimes overlook cash flow issues that could potentially arise. Deborah Meaden reiterates this when she says:

“entrepreneurs are optimistic, but they consistently underestimate cash flow.”

Cash flow looks deeper into a business and its practices. A company could be doing well in sales. Their products are popular, people find their services valuable. But if they find that their customers aren’t paying them within the agreed time frame, this will impact their cash flow and ultimately set back the company’s progressions.

For example, a major order could come in but if there aren’t any sufficient funds in the bank, staff or supply chains cannot be paid. This means a business will have to turn down projects that could help them grow and expand.

Cash flow management isn’t just for large corporations either. SMEs must make sure their cash is flowing. Even as a small business, you have many outgoing from buying office supplies, to paying bills and going all the way to paying employee salaries. Keeping an eye on the cash flowing through your business can help you meet these deadlines and keep your company steadily moving forward.

As Richard Branson once said, cash flow is the lifeblood of a business. And it really is. A good cash flow can be the difference between your company thriving or not.

When customers decide to constantly pay late on their invoices, it can cause real issues. A recent Xero study revealed that the average UK small business now faces more than four months of negative cash flow a year.

Cash reserves place you in a stronger position. You need money to spend on areas that can help you expand, grow, and ultimately make more money.

If you want to increase your cash flow and get those late payments in, call us on 01209 823118.