Running a business without keeping an eye on cash flow is like driving without checking how much petrol you’ve got! Sooner or later, you’re going to stall.
Whether you’re just starting out or well established, staying on top of your cash flow is essential to keeping things ticking over. Many UK businesses that struggle financially don’t fail because they aren’t profitable, but because they run out of cash.
The good news? There are clear, practical steps you can take to stay in control of your money and protect your business from needless stress. Something that we all need less of!
Why Cash Flow Matters
Cash flow is the movement of money in and out of your business, and it’s one of the clearest indicators of how financially healthy your company really is.
Positive cash flow (more money coming in than going out) gives you breathing room to pay the bills, make decisions with confidence, and even grow!
Here’s why managing cash flow well makes a huge difference:
- You can cover your running costs like wages, rent, and supplier invoices without stressing.
- You make better decisions because you know exactly what you can afford.
- You build credibility and get in the good books with lenders and suppliers by paying on time.
- You can take advantage of opportunities, such as buying stock in bulk or investing in equipment.
Strong cash flow doesn’t just help you survive, it helps you stay steady and flexible when things seem uncertain.
What Gets in the Way
Even if your business is profitable, you can still run into trouble if the cash coming in doesn’t match up with the timing of your expenses.
Some common problems include:
- Late customer payments which slows everything else down.
- Overestimating income, especially when relying on expected deals or seasonal spikes.
- Unexpected costs, from tax bills to emergency repairs.
- Scaling too quickly can lead to growing costs before revenue catches up.
Take Alex, who runs a small design agency. Business was brilliant, and he brought on two new freelancers to help manage the workload. But a few large invoices were paid late, and unexpected software costs piled up and up.
Even though the agency was profitable on paper, cash ran tight, and he had to dip into personal savings to keep things afloat. A bit of advance planning and closer cash flow monitoring could have saved the stress.
Knowing where these risks lie makes it easier to avoid running into a cash crunch.
How to Improve Cash Flow
If you’re wondering how to improve cash flow, start with little, manageable changes. These don’t need to be complex to start feeling the benefit.
Speed Up Your Invoicing
Send invoices promptly and follow up as soon as they’re overdue.
Setting shorter payment terms and using online accounting tools like Xero, QuickBooks, or FreeAgent can make the whole process smoother and reduce the chances of missed payments. These platforms allow you to automate reminders, track payments in real time, and get a clearer view of your incoming cash.
Watch Your Spending
Review your regular expenses and see what can be cut or renegotiated. This might include finding better deals with suppliers or cancelling unused services.
Build a Safety Net
Setting aside a small amount each month into a reserve account can help you cope when things don’t go how they’re supposed to! Ideally, aim to build up enough to cover 2–3 months’ worth of essential business expenses. This soft cushion gives you breathing space during slow periods or in case of unexpected costs, without having to run around headless for emergency funding.
Plan Ahead
Use a simple spreadsheet or accounting software to forecast your expected income and outgoings.
A basic cash flow forecast should include your sales projections, fixed costs (like rent and salaries), and variable costs (like materials, utilities, or seasonal stock). Seeing these figures laid out in front of you helps you spot potential shortfalls in advance and make adjustments before they become a pain.
Tidy Up Your Terms
If your current payment terms are 60 days, try bringing them down to 30. The sooner money arrives, the better your position will be.
Consider Leasing for Flexibility
For big purchases like equipment or vehicles, leasing can spread out the cost, keeping more money in the business day to day. However, it’s important to weigh up the long-term costs. Leasing might be more expensive over time than purchasing outright, especially for assets that hold their value or are used over many years.
You don’t need to overhaul everything overnight. Even one or two changes can make a noticeable difference and calm a busy mind.
How IFP Can Help
Managing cash flow is about understanding the bigger picture and making decisions that keep your business steady and growing.
At Informed Financial Planning, we support business owners in creating tailored financial strategies that help protect and improve cash flow. Whether you’re facing seasonal dips, growing quickly, or just want a clearer handle on your numbers, we’re here.
Our advisers can help you:
- Review your current cash flow position and highlight pressure points
- Build a practical cash flow forecast that fits your business cycle
- Explore funding or financing options to support short-term needs
- Create a plan for building financial resilience and future growth
Final Thoughts
Keeping your business liquid isn’t about chasing every penny. It’s about making sure the timing works. With the right habits and a little bit of planning, you can reduce financial pressure, make space for growth, and avoid the stress that comes with being caught short.
Managing cash flow might not be the most shiny and fun part of running a business, but it surely is one of the most important, and it’s well worth the time and attention.
Not sure where to go from here? You can chat with a financial expert and get some bespoke advice on running cash flow in your business.
Cash flow forecasts are based on estimates and assumptions, which may not reflect actual results.