KPMG · 28 April 2017

Cash is king: The dos and don’ts of cash flow management

Cash is king
Cash is king

For any business to succeed, it must have cash. Here we explore why cash is king and what you can do to keep your cash flow healthy.

Even if there are several hefty orders on the books, if there’s no cash flow to keep the business afloat it can still go under. That’s why KPMG Small Business Accounting has put together a comprehensive guide to cash flow for small businesses – you need to know when you have access to cash, and you need to know well in advance so that you can make plans.

It can be tricky to start forecasting when you’re new to it, but it’s well worth the effort to help you make informed decisions.

“If it looks like your business could run out of cash in the months ahead, you may be able to take steps now to stay out of trouble. A forecast may even suggest a surplus of cash is likely, so you can plan now to make best use of it,” said Bivek Sharma head of KPMG Small Business Accounting.

“Your actual figures might be different to your forecast, of course. But if you don’t forecast, you have no idea whether your business risks running out of cash. And if that happens – it might be too late to do anything about it.”

Cash flow management

Keeping a close eye on costs is sound cash flow management, don’t spend money unnecessarily.

Make sure you are always on the lookout for better deals with suppliers, speak to staff and customers and make sure you’re not providing them with things they don’t want or need. Create a cost-cutting plan and try to work as efficiently as you can.

You should also review your prices regularly, and make sure you account for any changes in the market so you don’t lose profitability.

A good cash flow system should also keep you up to speed on when an invoice has been paid, or is overdue. You can send reminders to customers shortly before a payment is due.

When the cash flow dries up

Lots of small businesses experience cash flow problems at one time or another. Often these can be relatively easy to sort out – look at where you can cut costs, or chase up money you are owed.

Invoice factoring might be a solution for businesses suffering from late payments, and there are other forms of finance out there if you need cash to reach the next phase of growth.

“You can get better at cash flow forecasting over time, but if required, an accountant can help you,” said Sharma.

“They should also be able to discuss options if cash flow problems look likely to affect your business. You can’t leave anything to chance when it comes to keeping your cash flow healthy.”

To find out more about how proper cash flow management can help your business grow, take a look at this guide from KPMG Small Business Accounting.

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ABOUT THE EXPERT

Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.

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