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Debbie Hancock

Debbie Hancock

Owner of Southbourne Accountancy & Business Services

Cash solves problems, cash is king 

What is cashflow? 

Snapshot of business finances, it is a picture of money flowing in and out of a business. This picture shows the long-term financial health. You can track this on a weekly, monthly, quarterly or annual basis.  

Why is cashflow important? 

It enables you to buy supplies, pay yourself and your employees and invest in assets.  

Inefficient management of cashflow will almost certainly lead to failure.  

There is a need to plan ahead to ensure all costs are accounted for correctly, on the correct dates and avoid penalties, fees etc.  

You can be profitable but be cash negative and this leads to issues.  

There is a need to account for short term cash flow issues, such as a customer who is slow to pay. 

How to analyse and monitor cashflow 

Add together all your bank accounts and any cash on hand, this is your starting number.  

Subtract all payments (do not forget VAT payments to HMRC if VAT registered, annual employee costs such as Class 1A NIC and PSA and corporation tax or payments on account if self-assessment) 

Add all income (not sales as you need to account for when you expect to be paid, not when you will make a sale) 

This will give you a negative cashflow (more cash out in the month) or positive cashflow (more cash in, in the month). It is best to do this for at least a year, so you can see the ups and downs that you can expect and when you may need to hold onto cash to ride out the negative cashflow months.  

It is good practice to use past data as well as future expectations to get the best cashflow forecast. Past data may reveal seasonal trends, or dates when major contracts are up for renewal.  

Consider future requirements of the business, such as will a greater work flow require you to hire more staff, are there any tax changes expect such as auto-enrolment pension increases and if you are not registered for VAT are you expected to reach the VAT threshold which would increase your prices to clients and change your cashflow.  

Consider if you like to see information presented visually such as graphs or in table format.  

What can you do to sleep soundly at night, reduce any potential stress and maximise opportunities? 

  • Avoid Surprises
  • Keep up to date accounts and cashflow forecast – add control and strategy
  • Consider if you will need finance in the future and start to seek out those relationships, understanding what you will need  
  • Make your cash work for you  
  • Could you move some of the funds into an interest baring account
  • Consider different methods of collecting payments such as; direct debit, GoCardless, stripe, up front payment or partial upfront payment.
  • Reduce costs
  • Repair equipment instead of re-buying
  • Look at your regular bills, have you reviewed them recently? Do you still require all the services you are paying for? Can you move utility provider?

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