Cash flow has never been more important than during these uncertain times. In this brief article, Clarkson Hyde’s Tony Terry highlights its importance to the business and his tips to improve it.
Types of cash flows
There are three main types of cash flows:
Operating – cash generated from business activities. Money received from customers less money paid on cost of sales, rent, salaries, etc.
Investing – cash generated from investing activities. Money received from selling assets and securities less money paid on the purchase of assets, securities and purchasing a new business
Financing – cash generated from financing activated. Money received form bank loans, directors loans less money paid out on repayment of a loan.
Why is cash flow so important?
Keeping the company afloat – cash is vital to ensure the company can pay its day to day bills.
Growing your business – having a positive cash flow will enable your business to take advantage of opportunities to expand.
Helping you to make smarter decisions – knowing that cash flow is important to the company’s health, decisions can be made to maximise the cash flow of the business.
Seasonal businesses – can build up a cash buffer in the busy season to enable the company to have sufficient cash reserves to pay the bills during the quiet season.
Top tips to improve your cash flow
Clean and tidy! – keeping clean, organised books allows business owners to know where they are at any given time
Chase customers – getting paid faster will improve your operating cash flow. To do this you should actively chase and remind customers that invoices are outstanding. If possible set up standing orders or direct debits so you can get the invoices paid on time.
Deposits – ask for deposits or prepayment to allow you to fund part of the cost of the sale upfront. Research suggests that customers who pay deposits are more likely to settle the remainder of their invoices in a timely manner.
Savings – analyse your expenses closely for unnecessary or ‘luxury’ expenditure and decide what can be cut back. It all adds up and especially if the expenses are recurring.
How we can help
We assist many of our clients with preparing cash flow forecasts, sometimes helping to set up a template for them to use or in preforming more detailed analysis, with current cash flow projections and actionable options for them to undertake to improve the cash flow. If you need any support, please don’t hesitate to get in touch with us on 020 8652 2450. We’re here to help you through this period of uncertainty.