Few businesses are focused on cash flow. Are you?
Just 14% of finance decision-makers in the UK focused on cash flow during the most recent Covid-19 lockdown, according to new research.
According to the survey commissioned by Invu, the majority of businesses focused instead on cost-cutting exercises and the use of Government support.
Whilst cost-cutting can be a key part of financial success, cash flow should not be ignored.
Here, we explain why focusing on cash flow is so important and offer several tips to help.’
Why is cash flow management important?
Focusing on cash flow allows you to clearly see the money that’s flowing in and out of your business at all times. Using this information your business can:
- Predict upcoming cash surpluses or shortages, allowing you to make informed business decisions
- Plan expenditure throughout the year – particularly when your income is at its lowest
- Put contingency plans in place should your cash flow look unhealthy
- Plan new equipment purchases or business growth
- Identify if additional funding is required
- Have the best possible chance of success
Why businesses should care more about cash flow than profit
You may have heard the saying “turnover is vanity, profit is sanity but cash is reality”.
For a business to be successful in the long term it needs to generate profits, of course. However, focusing purely on profit and ignoring cash flow can be a risky strategy and potentially prevent your business from reaching its true potential.
Other financial concerns
The research also highlighted other areas of financial concern. For example, the survey showed 16% of UK businesses can take up to 20 days to publish their management accounts – a further 7% take over 30 days.
Without real-time visibility over their accounts and knowledge of future financial commitments, businesses may be vulnerable to nasty financial surprises. It can also cause a delay in decision making which can be detrimental to future success.
As well as this, the survey showed that just 32% of businesses use budgetary controls at the point of making purchases. Despite this, 68% of those businesses believed their purchasing process was effective.
Making financial commitments without fully understanding the financial impact can lead to significant cash flow issues.
When combined with the slow reporting of management accounts, it can be difficult to notice potential cash flow difficulties until it is too late.
How to improve your cash flow management
Across our blog and resource centre we have various tips and guides to help you get in control of your cash flow. Here are a few resources which you might find useful:
- 5 common cash flow mistakes you’re probably making
- Creating a cash flow forecast: The complete guide
- How to spot a cash flow shortage before it happens
- 5 simple ways to improve your cash flow
- How to master your cash flow in 7 days
As a commercial finance broker we can introduce the most suitable finance facility for your cash flow needs. Contact us today on 0800 9774833 or request a call back to see how we could help your business.