The plain English guide to cashflow

When talking about cashflow you’ll often hear why it’s so central to good financial management, yet nobody talks about what cashflow is or how to get in control of it. Not having enough liquid cash is one of the biggest reasons for companies failing, so it’s important that you keep on top of your company’s cashflow position. Here’s our plain english guide to cashflow – what it is and how you can improve your cashflow management.

What is cashflow?

Cashflow refers to the movement of money into and out of your business over a specific period. In the most basic terms, cashflow is the process of cash moving out of the business (cash outflows), and cash coming into the business (cash inflows). The ideal scenario is to be in a ‘positive cashflow position’. This means that your inflows outweigh your outflows – i.e. that more cash is coming into the business than is going out.



When you’re cashflow positive, the main benefit is that you have the liquid cash available to fund your daily operations and debt payments etc. On the flip side, if you’re in a negative cashflow position, this can be a red flag that the business is facing some financial challenges – and that some serious cost-cutting and/or revenue generation is needed.

Five key cashflow areas to focus on are:

1. Monitoring your cash inflows and outflows – this means regularly tracking your cash inflows from sales, loans and investments, as well as managing your cash outflows from expenses, purchases and debt repayments.
2. Managing your account receivables and payables – efficiently managing your customer receipts and supplier payments helps smooth out your inflows and outflows – and delivers stable cashflow that’s easier to predict and manage.
3. Getting proactive with your budgeting and forecasting – creating realistic cashflow budgets and forecasts helps you predict your future cash position. By anticipating your future cash needs, you can actively plan for potential shortfalls or surpluses.
4. Being in control of your stock inventory – having excess stock in your warehouse ties up cash. So, it’s a good idea to optimise your inventory levels and to only manufacture/order the items you need on a day-to-day basis.
5. Investing in your cash reserves – with emergency cash reserves in the bank, you know you have the funds to handle unforeseen cashflow issues or sustain your operations during lean periods. This makes your whole cashflow position more stable.

How can we help you with your cashflow management?

Positive cashflow is the beating heart of your business and we can help you keep that cashflow healthy, stable and driving your key goals as a company. We’ll help you keep accurate records, track your inflows and outflows and deliver the best possible cashflow position for the business. So if you'd like to check where your cashflow is at or what improvements you can make, then get in touch with us.