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Why ensuring a steady cash flow is important in your business

It’s simple! Cash is the lifeblood of your business. If you fail to ensure you have a steady cash flow your business is at risk of failing. And, contrary to popular belief, it is possible for your business to be making a profit, but still fail if there’s not enough cash available to pay the bills, staff wages, suppliers and the like. It’s also a fact that the single biggest reason for companies failing in the first year is due to a lack of capital.

Assessment is important!

Assessing the predicted cash flow in and out of the business allows you to:

• identify when there might be possible cash shortages allowing you to plan for them
• decide when you may have a surplus of cash so you can use it wisely
• ensure you always have cash available for paying suppliers, bills, wages etc
• use of the cash available efficently
• make sound decisions about the company based on solid evidence

What to include in a cash flow forecast

It’s important to be accurate when you predict your cash flow. Don’t go overboard and use wildly exaggerated predictions of the number of sales you’re likely to make and do make sure that you add in everything you will need to pay. It may help to be a little cautious at this stage and be a little generous with your estimates of what things will cost as it’s better to have a surplus rather than a deficit, which will leave you in a vulnerable position.

As well as major costs, such as rent, wages, suppliers and the like, you shouldn’t forget smaller payments, so include, where appropriate:

Plus, anything else you need for your specific business. Once you know exactly how much money you need to keep the business running, you can make sure you have it available, or make plans to find it.

What can you do to help your cash flow?

There are three things you can do to improve your cash flow, which are to raise more money, increase sales and reduce costs – or a combination of all three. Doing this should free up money to ease your cash flow issues, whilst you work on a long term solution.

If you’d like more information on how to ensure you have a healthy cash flow, why not enrol on our Start Your Own Business Course or Finance for Non-Financial Managers.