5 Reasons why you need to focus on your business cash flow

If you are a new business owner, you might fall into the trap of not understanding the importance of cash flow management and only focusing on the sales figure.

Reasons of why you need to focus on cash flow:

  • Not all businesses will generate profit from the first year.
  • Not all organisations are profit-focused.
  • A big chunk of the cash generated from sales is used to pay suppliers, vendors or employees.
  • Profit does not equal cash; if your business is making a loss, it doesn’t mean you have no money in the company.
  • KPI driver and the number one top business habit

There is a reason why the cash flow is called cash (flow)

It is a dynamic and variable thing, not static.

It is vital to keep an eye on the cash balance and understand how it is generated.

I always encourage small business owners to focus on cash movement.

They are various steps you might take to manage the cash.
However, I will summarise the top three.

First, understand when your Peak flow, mid-flow, and low flow.

A peak flow could be identified by season for some businesses, for example, the summertime for holidaymakers. Low flow is the opposite.

Second, you need to build scenarios and focus on what concerns you the most to manage the risk that may arise.

A typical example of cash flow risk is unpaid invoices from customers, and introducing more cash by the business owner are the two top mismanaged factors that lead to a negative cash flow.

Last but not least, utilise the most cash generator and efficiently plan the peak flow period or season.

The simple formula for cash flow management is to take the net cash generated by the business, subtract all of your bills, and the result should be a positive cash flow balance every month.

You must create an efficient reporting system for your business and regularly read them.

You’ll be able to forecast company profits more accurately and identify investment opportunities.

A professional accountancy firm based in Birmingham helping clients across the UK on accounts, filling, tax affairs, and management accounts.

Follow Us