Managing your business's cash in tough times

With ever-increasing prices, a rise in interest rates and a looming recession, managing your business's cash and understanding cash flow are now vital in maintaining resilience and being able to adopt flexible strategies for success. 

What is cash flow?

Cash flow is a measure of the amount of cash that comes into and goes out of your business in a specific time period. A positive cash flow is when you have more cash coming into your business than you have going out of it. A negative cash flow is the opposite case – when you have more cash going out of your business than coming into it.

It's crucial to understand and monitor your cash flow. If you have an extended period of negative cash flow, it can become increasingly hard to pay your bills and cover other expenses.

Some types of business are more likely to run into cash flow problems, while others appear to be more resilient. If you are a business owner, you might be wondering which category your business falls into. No matter how inventive or straightforward your business model is, you can still have problems with cash flow. 

Managing the flow of cash in your business

The first stage of understanding and predicting how your cash flows is to carry out a health check on your accounts. Look at your latest profit and loss statement and check that your income is sufficient to cover your expenses. If your profit is falling behind your expenses and cash flow is slowing down, you might need to take action. Preparing a cash flow statement will help you know where the money goes. 

Next, create a yearly budget and look at those months where cash could become tight and those where you could save to cover the quieter times. Look at those less busy months and think about flexible work scheduling, new products or services or other activities to tide you over. 

Finally, make sure you collect your money from those who owe you and do so quickly. Dependent on your sector you could offer early payment discounts and set credit limits and payment terms. If you take on new customers, make credit checks. Penalise late payers and request upfront deposits or payments.  

Further help

We can help set up cash flow statements and an annual budget and of course answer any questions that you might have. Please drop us a line at enquiries@torgersens.com. 

About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.