Why cash flow is important for small businesses

Business, Finance - 17/11/2022

Increasing energy bills, the Covid-19 hangover, rising inflation and supply chain disruptions. To say running a small business in 2022 is challenging would feel like an understatement. That’s why it’s more important than ever to keep a close eye on your cash flow. 

Here we take a look at why cash flow is important for small businesses in these uncertain times. 

Cash flow helps you make better business decisions

When you don’t manage cash flow property, you could end up missing opportunities because you’re unaware of how you can invest money to grow. By the same token, you could end up overspending or being unable to pay your bills because you don’t have enough cash coming into your business. 

Why cash flow is critical to success

1,560 company insolvencies were reported in England and Wales in January of this year, double that of January 2021. Increasing costs matched with decreasing revenue makes it difficult for businesses to maintain profitability. If you’re not looking at the entire picture when it comes to your company’s finances, you could end up with some big problems. 

A common mistake businesses make is only looking at sales. While it’s important to know that you’re reaching your sales targets, your customers won’t always pay on time and you still have your own bills to pay. 

According to a Small Business Index (SBI) survey, more than 1,200 small businesses were impacted by late payment of invoices in the last quarter of 2021. That amounts to almost one in three small businesses in the UK. 

Cash flow forecasting gives you valuable insights 

What happens if a customer pays late? How would you manage if you lost your biggest client? These questions can easily be answered with a cash flow forecast. Seeing the bigger picture will give you the ability to come up with a plan B when plan A doesn’t go to… plan.

Keeping tabs on cash flow helps your business get to grips with how much working capital you have access to now and into the future. This helps you make better, more informed decisions. 

Growing your business 

Despite the current challenges faced by small businesses, it isn’t all doom and gloom out there. Small to medium sized businesses make up 99.9% of the UK’s business population and small businesses play a vital role in our economy. 

There are plenty of entrepreneurs out there looking at expanding their business now or at some point in the near future. If you’re one of them, cash flow modelling is essential to your success. You’ll be able to visualise what impact expanding your team and scaling your business will have on your numbers and you’ll be sure you’re making the right decisions at the right time. 

And there you have it. A handy guide to why cash flow is important to your business and we didn’t even say ‘cash is king’ once. If you want to find out more about how Numero can help you with your bookkeeping, get in touch with us today.