Why cashflow is important

Maintaining healthy cashflow is key to keeping your business afloat, enabling you to manage your outgoings, grab growth opportunities and deal with unexpected challenges.

Helping your business survive

Small businesses often operate on tight budgets, so every pound counts. 

Your business has outgoings you have to pay at certain times to keep it running. These might include:

• payments for materials
• wages for employees
• bills for contractors
• software costs
• purchasing or running machinery
• office or factory space rental

If you can’t pay your bills on time, or at all, ultimately your business can’t continue.

You can plan for your normal running expenses. But planning for income is much harder. If your cashflow is negative (i.e. you’re bringing in less than you’re spending) then one unexpected late-paying client or slow sales month could result in failing to pay your bills. 

This is a bigger problem for smaller businesses and startups, as you’re likely to have less money available for emergencies or slow business periods. If you understand when your business has potential cashflow problems, you can plan ahead and reduce the impact.

In short, ensuring that your business maintains a healthy cashflow is essential to keeping the lights on and the doors open.

Keeping things running smoothly

From paying employees to replenishing stock, your business is likely to rely on the availability of cash. As such, keeping on top of your cashflow can keep everything running smoothly.

For example, if your business can't pay its suppliers on time, then you might face stock shortages. This could lead to missed sales opportunities and disappointed customers.

Providing flexibility

Positive cashflow can help you seize unexpected opportunities. This might include purchasing more stock, investing in new technology or even expanding to a new location.

Whatever the opportunity, businesses with plenty of cash coming in are better positioned to take action.

Making your business more resilient

Having enough cash flowing into your business acts as a buffer during tough times, providing the financial resilience needed to withstand economic downturns and unexpected events such as the Covid-19 pandemic. If you have plenty of cash coming in, you won’t find yourself unable to pay bills should you be hit by unforeseen circumstances.

Boosting your credit

Lenders and investors look at a business’s cashflow to assess its financial health. A positive cashflow can improve your creditworthiness, making it easier to secure loans or attract investment.

Poor cashflow can lead to higher interest rates or loan rejections, restricting access to the funds needed for growth and expansion.

Ultimately, healthy cashflow is all about making sure that you have the money you need, when you need it.