What is meant by the term “cash flow”: cash flow means the flowing of money in and out of the business, with that in mind it’s helpful to run through some concepts and terms.

• Cash is King – this refers to the fact that no matter what you have invoiced out or owed to you, ultimately the only thing that matters is how quickly you can get it paid and into the bank. Cash is the life blood of the business without it, even the most profitable business will fail.
• Cash In – as the name implies this refers to money coming into the business as sales receipts / loans / investment etc.
• Cash Out – refers to all money flowing out of the business, business costs, wages taxation etc.
• Net Cash flow – this can either be negative if more money is going out than coming in or positive if the opposite is true.

Every business without exception should monitor / review its cash flow position – a perfect tool for this is a Spread sheet (you can download our free template).

By estimating when money is likely to be received in from customers you can see the impact on the business bank account if all expenses are also included on the sheet. Planning is the essence to a successful business, there are very few business’s out there that will have so much money rolling in that they don’t need to monitor cash flow.

Here are some compelling reasons to monitor cash flow.

• By watching and predicting when customers are paid, you can quickly see problem payers, and put systems in place if necessary. E.G credit checking customers, Invoice Factoring, good credit control practice. Your customers will soon get the message that you are on top of things and this will mean that customers will be less likely to put your bill to the bottom of the pile.
• You can monitor costs effectively – and immediately respond to spikes in expenditure if required.
• By planning ahead, any short falls in cash flow can be plugged with loans or by discussing with you bank manager possible over draft facilities.
• A cash flow forecast is required with any business plan, and all businesses need some kind of plan for future growth.
• Planning cash flow will keep your business in a healthy position, without the need for embarrassing conversations with the bank and suppliers if cheques or payments are not honoured. (This will also keep your bank charges to a minimum)

By Duncan Jones

Revoy & Jones Limited.