A small business guide to getting your cash flow right

In this piece James Poyser, CEO of inniAccounts, sets out a framework for getting your cash flow right.

There’s no doubt that cash flow is the lifeblood of a business and the cornerstone of business growth. Without cash coming into your business it’s impossible to meet all of your financial obligations from paying your taxes, through suppliers, to employees and yourself.

However, some of the best-run businesses go under when cash flow becomes a problem – if you run out of money to pay your bills you will fold, even if you have been profitable. And that’s an important point. Cash flow is not the same as profit.

So what are the basics? Let’s start with a simple example: You’ve landed a dream contract with great margins. In order to fulfil the contract you’ll have to purchase expensive materials up front. That’s fine but only if your customer also pays you at the same time. If your customer’s condition of placing the order with you is that they have 90 days to pay the bill then you’re in the red before you’ve started.

What’s more, if your product is popular you might get more orders, which is great news for your growth, but bad news for paying your supplier and getting the orders off the ground.
In this scenario, there’s a risk that the gap between the amount of money coming in and the amount going out will get larger. You won’t want to turn business away but equally you can’t take on business if you can’t pay for the materials. It’s catch 22.

It’s at this point that experts suggest talking to the bank to get a short-term loan to cover the cost of the materials until you get paid. They can see your order book and it will reassure them that you will be able to cover the repayments.


Ideally you want to avoid being dependent on loans to keep your business running so it’s a good idea to have a forecast in place. You’ll be able to chart your expected income and outgoings and clearly see the times when you are more financially exposed so you can do something about it before you run into trouble. Essentially, it will help you avoid taking on big contracts without checking you have the cash to service it.

It’s especially helpful if you are a seasonal business as it’s a well-known fact that Christmas can be a killer for cash flow. Do it daily, certainly weekly, to stay on top of things.
Your forecast should include confirmed sales and the sales you think you will have, against which you put your costs to produce the product and your overall business costs.

These costs should be split into different categories:

– The cost directly related to the sale like commission payments, delivery charges, materials, packaging
– The costs that are fixed such as rent, rates and salaries including national insurance and pension contributions
– Variable costs like marketing, phone bills and utilities
– Exceptional costs like equipment you need to buy
– Tax and bank fees like loan repayments, national insurance and corporation tax.

Forecasts are helpful as they allow you to see how the number of sales you make affects your total outgoings and when you will need cash to cover your costs, and how much you’ll need.

But you can’t live by a forecast alone. There are plenty of other things you should be doing to keep cash flow healthy.

Invoice your customers as soon as possible. The instant you complete the job send an invoice – every day you delay is a risk to your business. There are lots of good apps out there that will let you do this quickly and easily.

Make it easy for your customers to pay. Forget cheques. Even online bank transfers can be hard and give customers an excuse to wait to pay. Consider instant online card payments using services such as Stripe or Paypal. The service fee is often worth it to stay in business.

Keep on top of late payers. It can be a horrible job, but it’s important. If it’s not your thing, delegate it to someone practiced at it, like your accountant. If you do delegate, also ask that person to monitor your overall cash flow and alert you to any problems as soon as they arise, for example, when cash drops below a certain level.

Get customers to pay early. Better still ask customers to pay in advance. Customers with over-generous payment terms, like 90 days, could sink your business. Consider how you can encourage people to pay early or up front – is there a sensible discount you could offer?

Review your business model. Businesses with a subscription model find cash flow management much easier. Could you switch to a different business model that encourages regular repeat payments?

Manage your outgoings. On the other side of the coin is the question of how late you can pay your suppliers. There is no harm in asking for a review on terms. If you’re a good customer, pay on time and you have a solid relationship you may find you can move from 30 to 60 days and ease some pressure.

Review your suppliers. Are you getting the best price for your materials? If you can get the same quality for cheaper elsewhere then either switch, or discuss the difference with your current supplier. Everything you do to reduce your costs, however small is beneficial to cashflow.

Keep a war chest. Business, like life, is unpredictable. It’s prudent to keep a war chest handy with money you can use in an emergency such as a flood at your premises, a staff member going on long term sick, or a client going bust. Indeed, setting aside cash can also help you through busier trading periods too.

Taking time to organise your cash flow is well worth the effort. You’ll be better off both financially and emotionally if you are always in control. Plus if you plan to sell up, a grasp on this fundamental will make all the difference to how much you walk away with.

James Poyser is CEO of inniAccounts

Further reading on cash flow

Ben Lobel

Delphine Hintz

Ben Lobel was the editor of SmallBusiness.co.uk from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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Cash Flow

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