What do I need to consider in order to ensure that my business has sufficient cashflow?

Q

What do I need to consider in order to ensure that my business has sufficient cashflow?

A

The business needs to ensure it is generating sufficient cash to meet its everyday needs, as well as any large one-off expenses. For example, the business’s tax bill can often be a large lump sum that needs to be paid, and this needs to be budgeted for. Similarly, where there are large capital items to be purchased it is necessary to ensure that there is sufficient cash to pay the cost.

Cash flow can be particularly difficult for new businesses. This is because most suppliers want immediate payment, but customers may take several months to pay, leaving a significant gap between cash outflows and inflows. This is because the work for the customer needs to be done, the client invoiced, and then the client needs to arrange to pay the business. Not all businesses suffer this cash flow problem. For example, retail businesses often get immediate payment for their sales. But even a retail business needs to undertake a cash flow analysis to ensure that there are sufficient funds to meet needs, for example to buy equipment or seasonal stock.

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