Cashflow Management Insights

Elaine Smith, Finance Coach

I’m delighted to share insights from my recent participation in Virgin Media's Backing Business webinar focused on the crucial topic of managing money in small business. The overwhelming response underscored a common dilemma: the widespread confusion surrounding cash flow management.

So I thought it might be worthwhile to do a brief summary of the key things you need to know about cashflow:

 

1.     What do we mean by cashflow?

2.     How do I know if I have a cashflow problem?

3.     What to do about it if I have.

4.     How to avoid cashflow issues

 

So let’s tackle these one at a time.

 

What do we mean by cashflow?

Cashflow basically means the amount of money coming in and out of your bank account on a daily, weekly or monthly basis.

 

How do I know if I have a cashflow problem?

If you're constantly juggling finances or nervously monitoring your bank balance, chances are you're facing a cash flow predicament. Common cashflow issues I hear from clients are:  

- Juggling payments to suppliers or long delays in paying suppliers

- Panicking or not prepared for about large amounts coming out of the bank account e.g. Vat or P30 payments

- Trying but failing to “put money aside”

- Checking the bank balance every day and worrying about it.

- Making decisions based on the bank balance e.g spending when balance is high and then worrying about that spending when balance is low.

These are very common day to day issues for business owners in Ireland but there is really no need to have sleepless night over cashflow…

 

 

How to fix a cashflow problem

My first piece of advice here is find out if you really do have a cashflow issue or does your business simply need to get a bit more organised. 

 

The first thing I will do for a client is set up a cashflow budget and forecast. This is a simple template where we can track money coming in and out of the business and look ahead to predict the bank balance in in future weeks or months. This way we can see in advance if there are any point in time where cash is going to get tight and we can prepare for it in advance.

 

Also we can test spending decisions and see the impact on the business in the future. If we do discover a cashflow issue then it’s time to put on our detective hats and find out where money might be leaking from the business and how can we seal up those leaks. In an emergency situation we might want to reduce some costs quickly or even arrange an overdraft or short term loan.

 

One thing I will say is that a cashflow problem will not go away on its own and if you can learn to understand it and manage it you will have far less sleepless nights and will most likely have a more profitable business as well.

 

How to avoid cashflow issues

Being “good with money” in your business is not as difficult as you might imagine and you definitely don’t need to be a numbers whizz to take better control of your profit and cashflow.

To avoid cashflow or any other financial issues in your business educate yourself and consider getting outside help to establish a system that allows you to monitor cashflow and spending every month. By mastering cash flow management, small businesses can thrive, leaving sleepless nights behind and paving the way for profitability.

 

Elaine Smith is a Finance Coach for small businesses all over Ireland and the UK