Cashflow management

Ideally, you will have more money flowing into the business than out. This will allow you to build up cash balances to deal with short-term costs - such as bills or expenses - as well as funding growth and reassuring lenders and investors about the health of your business.

However, income and expenditure cashflows rarely occur together - cash inflows often lag behind, so it is important to maintain enough cash in your business to deal with day-to-day running costs. Your aim should be to speed up the inflows and slow down the outflows wherever possible.

Cash inflows include:

• payment for goods or services from your customers
• receipt of a bank loan or increased loans or overdrafts
• interest on savings and investments
• shareholder investments

Cash outflows include:

• 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, National Insurance contributions, etc

Many of your regular cash outflows will need to be made on fixed dates. So you must always be in a position to meet these payments in order to avoid large fines or a disgruntled workforce.

Improving your cashflow

To improve everyday cashflow you could:

• ask your customers to pay sooner - see invoicing and payment terms
• chase debts promptly and firmly - see ensure customers pay you on time
• use factoring - see factoring and invoice discounting
• ask for extended credit terms from suppliers - see negotiate the right deal with suppliers
• order less stock but more often - see stock control and inventory and innovation in manufacturing
• increase your sales and profitability - see strategies to improve sales and profitability

You can also improve your cashflow by borrowing money, or investing more money into the business. This can help you cope with short-term cash problems or fund short-term growth, but it is important not to rely on these in your cash strategy.

For more information see Invest NI’s tutorial on maintaining a positive cash flow - it will outline actions you can take to manage your cash effectively and provide you with key tips to keep your business financially sound.