• Financial Planning
  • Budgeting Basics
    • Creating a Budget
    • How to use your budget
  • Cashflow Basics
    • Cashflow Forecasting
    • Managing Cashflow
  • Profit & Loss Basics
    • Records required for producing a profit and loss account
    • Profit and loss accounting periods and tax
  • Balance Sheet Basics
    • Contents of the balance sheet
    • Accounting periods
• Raising Finance
• Bank Articles
• Support Schemes
• Local Finance Support Schemes

Cashflow Basics

Cash enables a business to survive and prosper and is the primary indicator of business health. While a business can survive for a short time without sales or profits, without cash it will die. For this reason the inflow and outflow of cash – the cashflow - needs careful monitoring and management.

To trade effectively and be able to grow your business, you need to build up cash balances by ensuring that the timing of cash movements puts you in a positive cashflow situation overall.

Bear in mind that having a lot of cash in your bank does not necessarily make good business sense. If you do not need to use it immediately, put spare cash into an account where it will earn a higher rate of interest, or use it as capital for short-term investments.

You should note that income and expenditure cashflows rarely occur together, with inflows often lagging behind. Your aim must be to speed up the inflows and slow down the outflows.

Cash inflows

• Payment for goods or services from your customers.
• Receipt of a bank loan.
• Interest on savings and investments.
• Shareholder investments.
• Increased bank overdrafts or loans.

Cash outflows

• Purchase of stock, raw materials or tools.
• Wages, rents and daily operating expenses.
• Purchase of fixed assets - PCs, machinery, office furniture, etc.
• Loan repayments.
• Dividend payments.
• Income tax, corporation tax, VAT and other taxes.
• Reduced overdraft facilities.