How to manage your cash flow

December 12th, 2017 .
Authored by Hiscox Experts .
4 min read

It would be great if money came in and out of your business just like clockwork, exactly how you expected it to, every month. But these things rarely work out perfectly; clients and customers don’t always pay on time and unforeseen staffing needs or investment opportunities can make your bank balance shrink in the short term.

Why it’s important to manage cash flow

When running a small business, cash flow is one of the major concerns. There are many factors that can affect this, so knowing how to solve cash flow problems is important. In this article, we’ve broken down the top things SME owners can do to protect their company’s finances. With expert tips from Colin Hewitt, CEO of Float (a cash forecasting tool), you’ll find some valuable advice for managing your business’s cash flow.

How to improve cash flow

Colin Hewitt, CEO at Float, advises coming up with a plan and sticking to it.

“The best advice we could give is to set budgets and stick to plan, make sure your invoices are being paid on time and do a forecast to find out how much cash you will have in the coming weeks, months or years.

"Forecasting shows you the health of your business and helps you secure investment. It’ll also help you decide how much you can reinvest and plan for any cash gaps that might arise.”

If you’re struggling to know where to start with small business cash flow, these tips will help you manage your finances and make sure you don’t get caught in a sticky situation.

Get forecasting: Keep on top of what comes and goes

Whether it’s with a spreadsheet or an online forecasting tool, keep tabs on your finances. Set budgets, check how well you’re sticking to them, assess the effect new hires or business will have on your cash flow and make it easier to foresee when a late payment could cause problems.

If you make sure you’re always aware of exactly when finances are coming and going, you can make a contingency plan and always know how to solve cash flow problems.

Invoice on time: Make sure there’s no delay on your side

Send an invoice as soon as work has been completed. Use email for speed and record keeping, and don’t be afraid to chase late payments. Be charming but persistent; if you’ve done the work, you deserve to be paid for it.

Spend a bit of time early on creating an invoice template that looks professional, contains all the necessary details for tax and legal purposes and clearly states who owes what and when.

Negotiate terms: Quick-paying clients are gold

Big clients are known for slow payments. Ideally get suppliers to pay within a fortnight but try to avoid terms longer than thirty days. Balance profit margins with quick payments; don’t underestimate the value of gaining small clients who pay on time even if you don’t make quite as much from your business with them.

Build a cash reserve: Prepare for the unexpected

If you can, put some money aside – it could help you put in a big order for stock at a discounted price or enable you to take on a new client without needing to delay while you borrow. Startups need to be able to cough up a lot of one-off payments – equipment, deposits, decorating bills, staff uniforms, insurance, you name it – making a buffer even more essential.

Cash flow is hugely important to startups as growth-focused businesses. Plenty of startups survive for years without making a profit but only if they have a healthy cash flow. That’s why, in association with Courier, we’ve created this video to provide some simple steps for you to keep track of your cash flow.

Hiscox Video shape

Keeping on top of your finances is key to running a successful – and profitable – business. Ensuring your company is protected against life’s sudden challenges is important, Hiscox Start up insurance can help protect you from the unexpected.

To find out more by reading the full guide to managing business risks, check out our PDF Guide:

At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.

Hiscox Experts

Hiscox insures over 400,000 UK businesses (based on the number of policies sold in 2021), has a Defaqto five-star rating and is the proud winner of the Feefo Platinum Service award (2020-2022), rated by real customers.