Do You Know How Much Cash Your Business Has?

Do you know how much cash your business has? What about the next three to six months? Understanding your cash flow position will help you to make informed decisions that will keep your business afloat in tough times. This guide will show you how.

Cash Flow Warning Signs

Poor cash flow management is a major cause of business failure. The following factors are indicative and could easily trigger a cash flow crisis –

  • high stock levels
  • late invoicing
  • overdue receipts
  • bad debts
  • over-reliance on a few big customers
  • inadequate/wrong type of financing

In the current climate of economic uncertainty it is vital to get a grip on your cash flow management. You need to know how much cash your business has now, and is likely to have in the medium to long term.

The Cash Flow Management Process

1/ generate a cash flow forecast
2/ increase money in
3/ reduce money out

Generate a cash flow forecast

First, note the main sources of cash receipts over the last six to twelve months. These are most likely to be –

  • cash and credit income
  • disposal of fixed assets
  • grants and loans

Second, note the main expenses over the last six to twelve months. For example –

  • payments for goods and services
  • payments for the acquisition of fixed assets
  • other expenses – such as drawings or dividends, hire purchase costs, interest payments, and tax payments

Third, create a forecasting spreadsheet and use your revenue and expenses data to fill in the details (see example below).

Example cash flow forecast spreadsheet – click to enlarge

How long can you maintain your normal commercial operations? Do you need to raise your prices or find new customers? Are you able to reduce or eliminate any expenditure items?

Make the adjustments that will help you to stay in the black.

Increase money in

First, identify which customers have outstanding balances and owe you the most cash. If you have accounting software you can do this by running an open invoices report and an aged debtor report. Collecting the sums due will be easier if you have a credit control policy in place and you know your customers well.

Related post – Credit Control, Cash Flow and Late Payers.

Second, explore other income options. The UK government has made a range of grants and loans available to businesses affected by Covid-19, for example. Do you have assets that could be rented, leased, or loaned to other businesses?

Reduce money out

First, identify priority debts.

Priority debts will include any sums due for 

  • Business premises (e.g. mortage, rent, utilities, rates)
  • Taxes (e.g. VAT, Income Tax, National Insurance) 
  • Vehicles and machinery (e.g. Lease and Hire Purchase agreements)
  • Materials (e.g. Trade Suppliers) 
  • Bank loans secured on property or via personal guarantee

These types of debt are a priority because the creditors involved can very quickly invoke legal sanctions (such as asset seizure, supply disconnection/disruption, fines, and penalty interest) that could prevent you from trading. Unpaid accountancy fees may also need to be treated as a priority if you need to complete a tax return and your accountant/bookkeeper is refusing to return your books.

Second, identify non-priority debts.

Non-priority debts will include the following

  • Unsecured loans (e.g. business credit cards, bank loans and overdrafts) 
  • Non-essential business supplies (e.g. stationery, computer accessories),
  • Non-essential fees (e.g. subscriptions, memberships, or advertising)
  • Other loans not secured on an asset or through a private guarantee (e.g. charge cards like American Express). 

The sanctions available to non-priority creditors are less severe. If you are unable to pay in accordance with the agreed terms, unsecured creditors may transfer your account to a debt collection agency or seek redress themselves through the County Court. Even at this stage, enforcement proceedings may be suspended if you are able to provide a credible repayment proposal.

Related post – Debt Recovery, Court Orders and Judgement Enforcement.

Third, ask for more time to pay

Start with the payments which are already due (or overdue) and negotiate with the priority creditors first. Are they inclined to defer payments or restructure terms and fees, for example?

As we have seen in this current pandemic, the government has been willing to postpone payment of taxes. Banks and building societies have given mortgage “holidays”. Utility companies may offer you cheaper tariffs, for example.

If you are able to reach an agreement with a priority creditor you should stick to it. Otherwise, you should aim to pay in accordance with the original terms even if it means less money for non-priority debts. 

Non-priority creditors (including debt collection agencies) are more likely to accept reduced payments if you explain your situation clearly and sincerely. But if you cannot obtain an agreement with a non-priority creditor you should still pay them what you can.

If you have several non-priority debts, don’t be tempted to clear the smallest first. Offer each creditor an equitable portion of your monthly available income so that all of the debts are paid off at roughly the same rate of time. Be prepared to justify your decision should any of your creditors decide to pursue legal enforcement through the County Court. 

Further advice and support

Investing in accounting software and hiring an accounting professional will make cash flow forecasting and credit control much easier.

If you require assistance with business debts and legal proceedings you should speak with a licensed insolvency practitioner. You will will find a list of insolvency practitioners on the government website, Find an insolvency practitioner.

Need a little help?

My Accounting Emails are for business owners who want a better understanding of their financial position. They’ll help you manage your cash flow and stay in the black.


Need more help?

Contact me today and we’ll talk about the help you need.


“As a small business it is important to always have financial clarity and often it is difficult to try and do this yourself. Paul has worked with us for several years and has streamlined and organised all of our accounting systems. He provides us with a complete accountancy service and is very professional in his approach as well as being a likeable guy.” - D. Walsh, Director. DualTEC Services Limited, Keighley.
(Google review)
“Paul has done a great job putting my accounts on to Sage Business Cloud, and also got a discount for me. I like that the software is MTD compatible and I can access it from anywhere. Paul sorts out all my invoices, does my bookkeeping and produces reports every quarter (or whenever I need them). He is friendly, reliable and easy to work with - it's good to have him on board." - C. Milne, Proprietor. CAM Properties, Carnforth.
(Google review)
Contact details for PAUL J LOCKEY Bookkeeping & Accounts