Three steps to manage your cash flow

Remember, you only have a ‘business’ if you are making money out of selling to your customers and getting paid.

Equally, being able to manage cash is an essential skill for business owners, for even if you are making money, your business could fail if you run out of cash.  

Follow these three steps to get a grip on your cash and make it work for you.  

Understand your history

You know where you are, but how did you get there?

Re-construct your trading cash flow using the actual dates when transactions were made. Strip out non-trading items such as loans and loan repayments and get back to the bare bones of your trading history, to see if you are really making money.

Add back your other payments. Then write down who owes you money and who you owe money to. Don’t fool yourself – include those invoices you have kept in your desk drawer and not yet given to your bookkeeper! 

Group your transactions into categories - suppliers, staff, overheads, charges, interest, loan repayments etc. Keep on digging until you understand the story.

Predict your cash flow

Now, this is the hardest part. Document your sales pipeline – take your prospects and estimate, step by step, when they will become genuine enquiries, when they will place their order, when you will ship, and when you will get paid. Do this right through to your last prospect.

Using your history, predict your payments, then add it all up week by week, month by month. The result is your cash flow plan.

Manage it

Now you have a cash flow plan that shows when you are likely to be short of cash and by how much.

Furthermore, you should now understand what strategies you can adopt to do something about it, such as:

• Get orders in earlier;
• Bring money in earlier: ask for full or part payment in advance;
• Phone your customers and get them to pay your invoices;
• Find cheaper sources of supply;
• Reduce staff costs by being imaginative in how your share work around;
• Delay payments to suppliers - talk to them and tell them why; and
• Focus on high margin activity.

Build a reserve

Finally, plan for building up a cash reserve that you can dip into when you need to. If you use an overdraft for this, do remember it is not your money you are spending.

Have fun – once you master this you will be surprised at how it helps you achieve your vision.


And remember, we can help. We can construct your cash flow plan for you and show you how to manage your cash.