Cash Flow Management

Cash flow Management is the Lifeblood of your Business

Cash flow is of vital importance to the health of a business. One saying is: “revenue is vanity, cash flow is sanity, but cash is king”. What this means is that whilst it may look better to have large inflows of revenue from sales, the most important focus for a business is cash flow.

Many businesses may continue to trade in the short- to medium-term even if they are making a loss. This is possible if they can, for example, delay paying creditors and/or have enough money to pay variable costs. However, no business can survive long without enough cash to meet its immediate needs.

Cash comes into the business (cash inflows), mostly through sales of goods or services and flows out (cash outflows) to pay for costs such as raw materials, transport, labour, and power. The difference between the two is called the net cash flow. This is either positive or negative. A positive cash flow occurs when a busineCash_Flow_Management_Example_1.pngss receives more money than it is spending. This enables it to pay its bills on time.

A negative cash flow means the business is receiving less cash than it is spending. It may struggle to pay immediate bills and need to borrow money to cover the shortfall. The distinction between cash flow and profit is shown in the example. 

Improving cash flow

A business can look for imaginative ways to improve cash flow or manage credit:

  • Making sure that all assets are producing income - hired to other businesses if not being used otherwise actively selling them.
  • Making sure as little interest as possible is being paid on borrowing; pay debts early if possible and consolidate debts into one long term, low interest rate package.
  • Negotiate payment dates with suppliers, perhaps paying later, or in installments.

If a business is profitable, this should mean a little more cash comes in each time the cash flow cycle turns. This can then be used to cover those periods where there is a shortfall. Careful planning will ensure that the business is aware of possible future shortfalls so that it has these planned into its business strategy. This will mean that there is always enough cash to pay credit.

Projections must be:
  • Simple
  • Essential management tool
  • Good cash management gives confidence to creditors and financiers

Set out below is a sample of short term cash management.


It covers the day to day requirements of the business. 

Long term cash flow looks at where the business will be in a few years’ time.


Common problems with cash flow are:
  1. Struggling to find the money to meet your tax obligations.  If you can’t meet your tax obligations you can face
  • Late payment penalties
  • Use of money interest charged by the IRD on unpaid tax
  • Penalties ranging from 20% to 150%

Monitoring your business is the only way to prepare for your tax obligations, planning or setting aside the funds to pay tax so that you meet the timing of your tax obligations.

  1. The loan structure not matching the inwards cash flows - there is a mismatch between the loan periods and your income flow, not paying attention to when the payments will be made and then not communicating with us and your financiers when there are glitches in your cash flow.

  1. Either taking too much in drawings or the business has insufficient cash flow available for your personal needs

We can offer:

  • Detailed cash flow management spreadsheet for those who have excel and want to do it themselves.
  • Cash flow projections to see where your business is going plus business performance monitoring against your own performance indicators. 
  • Review of your borrowing to best match cash flow to payments.

Contact Us now to see how we can assist you and your business!