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5 Actionable Cash Flow Tips That Can Help Your Business Stay Afloat

We at Float like to think of cash flow forecasting as your fitness plan. You cannot expect your cash flow to be healthy after a single forecast. You will only see results with consistency and good habits. Around 70% of UK small businesses experienced significant cash flow problems in 2020 which are detrimental to their operations. This is why we want to share some good cash flow habits that will help your business maintain a healthy cash flow.

1. Get to know your ins and outs

How many of us have left some subscriptions (e.g. Audible) active without using them? We have all been guilty of signing up for a free trial that has converted into a paying subscription without realising. The same goes for your business, particularly when you have multiple people in the team or different departments that are signing up for things.

A £3.99 per month subscription might not seem so significant but when let’s say, three people, from different departments have signed up for the same subscription, that adds up to £144 annually. That is equivalent to three months worth of Float’s essential plan that is actually beneficial for your cash flow management. Float will show you all transactions that are going through any cash accounts in Xero, QuickBooks and FreeAgent, so you can take a deeper look into the details of invoices or payments.

So, remember to look at all of your bank accounts, including credit cards, as a lot can be hiding in there. This might seem like a mundane task, but you could be surprised at how much you can actually save. It’s like waking up one day and seeing the gains from your regular workout.

season 5 GIF by SpongeBob SquarePants

2. Maximise your visibility

It is crucial to forecast your cash flow for both the short-term and long-term, as these will both guide you through critical business decisions. Think of the short-term as a detailed map and the long-term as the bird’s eye view of your path ahead.

Short-term visibility will help you consider any immediate decisions such as chasing on late payments or when to make the next Payment Run. This will really help you to anticipate missed payments and avoid any cash gaps. Whereas, longer-term visibility will help you make more strategic decisions for your business. For example, having long-term visibility will allow you to consider whether you need to liquidate assets or refine your payment collection strategies.

Invoices and bills will only let you see a month or two ahead, and remember they won’t include other costs such as payroll or VAT payments. That’s why it’s so important to build a cash flow forecast to allow you to maximise your visibility in the short and longer term.

3. How to stay on top of cash gaps

Maximising your cash flow visibility using Float’s forecasting and budgeting tools makes it easier to spot cash gaps before they become a problem. You can see where your outgoings are higher than your income, and whether this might cause temporary, or more permanent, gaps in your cash balance.

Having cash flow visibility allows you to take action before these cash gaps reach you. The action you take will also depend on whether the gaps are temporary or not. For instance, if your cash flow forecast indicates a temporary cash gap, you might want to delay any planned increase in costs such as hiring new people or starting a new project. You don’t necessarily have to cancel these exciting milestones, sometimes it might be enough to delay them by a few weeks to get past a temporary dip in your cash reserves.

You might also want to negotiate longer payment terms with suppliers. These could just be temporary for a few invoices, to help tide you over, or perhaps a more permanent shift in payment terms. In either case, it is always better to be transparent and speak to your suppliers first. You’ll know from your own experience of chasing customers, that you’d rather have upfront awareness if your customer is unable to pay, and perhaps you can offer a payment plan. If you are buying stock, you can ask your supplier to offer consignment stock so you only pay for what you use and when you use it.

Lastly, this tip is aimed at those with more permanent cash gaps such as overdrafts, loans, or other types of external funding. To have the best options available to you here, you need to build your cash flow forecast. Lenders will be much happier to lend to businesses that have the awareness that they’ll need funds in six months versus someone who needs funds next week.

4. Dive deeper with ‘what if’ questions

As a business owner, you must ask yourself a lot of questions daily, and most likely they are related to cash impact on your business. Only once you have a cash flow forecast, can you start to ask yourself some ‘what if’ questions – What if I want to hire more staff? What if I want to increase production capacity?

Your ‘what if’ questions are valid and necessary. Now, ‘what if’ we told you that you can put these hypothetical questions into practice with a unique technique called Scenario Planning? Modelling the impact of these questions will give you the confidence to make better business decisions.

In Float, you can build out your ‘what if’ questions using our scenario feature. You can start to build out an alternative view of your cash flow, giving you that visibility of the impact on your cash.

Making that decision in the moment is difficult when you are clouded by pressure and urgency. This is why it is so useful to be able to visualise your cash flow like a map. Cash flow forecasting can give you the confidence to make more accurate decisions more quickly.

5. Make sure everyone is on the same page

People in your business are making decisions every day that impact cash, whether that’s the salesperson agreeing longer payment terms, the marketing team signing up a new agency, or the bookkeeper making supplier payments. And everyone else in between.

This is why it doesn’t make sense that only one person is responsible for a cash flow forecast. A single person will likely miss the context that everyone else has, which leads to an inaccurate cash flow forecast. It also leaves a knowledge gap that could lead to decisions that are detrimental to the business’s cash flow. Involving everyone in the team when building a cash flow forecast can drastically improve the accuracy of your forecast as well as create shared accountability. The health of your business should be looked after by the whole team, as it’s a team effort!

So, there you have it! Our top 5 actionable tips to keep your cash flow in check and your business thriving. Make cash flow forecasting a healthy habit in your business fitness plan. We have done the heavy lifting for you with Float’s FREE trial, now the future of your business is in your hands!
Happy Forecasting!

Polly Wong

Digital enthusiast, an advocate for using tech to work smarter so I can spend more time with my cats