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Where does the money go? - March 11th 2022

With ever increasing supplier prices, managing your businesses cash and understanding the flow are now vital tools in maintaining resilience and being able to adopt flexible strategies for success.

Fund flows are a reflection of all the cash that is flowing in and out of a business. Owners can look at the direction of the cash flows for insights about the health of specific products or services and overall market patterns.

Some types of business are more likely to run into cash flow problems, while other types appear to be more resilient. If you are a business owner, you might be wondering which category your business falls into. No matter how inventive or simple your business model is, you can still have problems with cash flow. Here are our thoughts on managing the flow of cash in your business:

The first stage of understanding and predicting how funds flow is to perform a health check on your accounts. Look at your latest profit and loss statement and check that your income is sufficient to cover your expenses. If your profit is falling behind your expenses and cash flow is slowing down you might need to take action. Prepare a funds flow statement so you know where the money goes.

Where did the money go?

  2022 2021
Money from trading    
The net profit before depreciation £150,000 £120,000
Money from other sources    
Increase in HP liability £20,000  
Sales of Assets £2,000 £5,000
Increase in what we owe oursuppliers and others £1,000  
Capital Introduced £20,000 £20,000
Total extra money for the year £193,000 £145,000
How we have spent this money    
Our private or personal expenses -£25,000 -£20,000
Our income tax bill -£30,000 -£20,000
Purchase of assets -£30,000 -£25,000
Increase in the amount our customers and others owe us -£3,000  
Decrease in loans -£15,000  
Total money spent in the year -£103,000 -£65,000
This leaves us with - Increase/(decrease) in cash £90,000 £80,000
Reconciled to cash movement:    
Cash at bank and in hand    
At the beginning of the year £30,000 -£50,000
At the end of the year £120,000 £30,000
Increase/(decrease) in cash £90,000 £80,000

Next create a yearly budget and look where cash could become tight and months where you can save to cover off the quieter times. Look at those quieter months and think about flexible work scheduling, new products or services or other activities to tide you over.

Finally make sure you collect your money from those who owe you quickly. Reward customer loyalty by offering early bird discounts, set credit limits and payment terms to ensure customers follow the rules. If you take on new customers make credit checks. Penalise late payers and request up front deposits or payment.

Talk to us about preparing a funds flow statement and annual budget so that you can work on your business for maximum success!