How important is cash flow management in business?

Cash flow is a useful indicator of financial health and can tell you a lot. Being in a good cash flow position usually means that you can pay your monthly overheads, pay staff on-time and have enough cash available to meet financial obligations.

Measuring and understanding your cash flow is vital when running and growing a business successfully. Without a steady grasp on when and where your money is coming or going, you’ll find it difficult to sustain your business.

This is especially true in our current climate. The impact Covid-19 is having around the world is substantial. The Irish Government is offering great schemes to help mitigate the challenges and many businesses are still operational. We’re here to support you during these changing times.

Cash flow management tips

  • Calculate a cash flow statement and forecast
  • Use software to help you with cash flow management
  • Talk to your suppliers
  • Talk to your clients
  • Talk to your bank or financial institution
  • Reconsider your strategy in times of crisis or unprecedented challenges

B2B cash flow vs B2C cash flow

What is the difference and how does it effect your cash flow planning?

B2B cash flow management

It’s common in business to business (B2B) sales that invoices are sent for work due, scheduled to be completed and then your client pays your invoice within a certain time frame, for example, 30 or 60 days. This means that work is already in progress and you may not be paid until a couple of months down the line.

But what happens if your client cannot pay your invoice or they seek payment extensions? This could potentially hurt your cash flow because you could be relying on this income to pay your bills.

In this instance, it doesn’t matter how good you are at sales, if you aren’t getting cash in, you may need to seek loans to pay your suppliers, which will incur interest. In the long run, this will add to the costs of your business and therefore harm your cash flow management.

B2C cash flow management

Cash flow management when dealing with customers can sometimes be more reliable than dealing directly with businesses. Especially if you are starting an online business with an e-commerce element. Your customers can buy your products or services online and you receive the money instantly.

However, there are other factors that could affect your cash flow when selling directly to consumers. For example, you may have periods of low sales due to seasonality, issues with offloading stock or unforeseen challenges such as increased travel restrictions due to Covid-19. Many retailers have suffered because of these new enforcements by the government.

We’re here to give you practical tips to help you manage your cash flow, so you can feel more in control of your situation and your business.

We’re here to give you practical tips to help you manage your cash flow, so you can feel more in control of your situation and your business.

Continue reading to find out our tips or talk to us if you have any questions.

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Calculate a cash flow statement and forecast

  • You need to determine what the cash needs of the business are.
    • Each business will have fixed costs – for example, rent, insurance, phone, internet.
    • There are variable costs too – for example, taxes, VAT and PRSI liabilities and operational expenses.
  • Prepare a cash flow statement and look at what costs can be cut. Don’t worry if you don’t know how to prepare one, there is great software we recommend.
  • Challenge some of your existing costs. For example, can wages be cut? Can you reduce or postpone non-essential purchases?
  • You can prepare a cash flow statement every week, month and three months if you are in a difficult cash flow position. This will help you control your cash flow.

Use software to help you with cash flow statements and cash flow forecasts

Xero

Xero is accounting software that takes over heavy accounting tasks, such as reconciling bank accounts, sending invoices and creating expense claims. This beautiful software is on the cloud and gives you intuitive dashboards so you can stay on top of your cash flow anywhere.

Using Xero can save you hours of admin and can be integrated with over 800+ apps so you can create comprehensive reports suitable for your business.

We love Xero because it offers everything you need in one place. It lets you manage your expenses, bank accounts and invoices on the cloud so it doesn’t matter where you are and you can always check up on your business! We have moved our own business over to Xero and highly recommend it for micro and small businesses.

Special Offer for Xero

We offer free Xero Premium subscription to all our accountancy clients as part of our accounting packages, like our Startup Offer, Small Company Accounts Package and our Scale-Up Offer.

A premium subscription usually costs €40 per month but it is free for clients that avail of one of our accounting packages.

Xero Premium offers multicurrency, sends invoices, quotes, reconciles bank, captures bills and receipts with Hubdoc.

If you would like to talk to about Xero and our accounting services, call our Client Services Team on +353 (0)1 905 9364, email hello@accountantonline.ie, or chat with us online now.

Cash flow management tools

Float

If you are interested in software specially designed for cash flow management, we recommend Float.  This tool allows you to manage your cash flow in real-time. You can view clear and precise information on what’s happening in your business and plan for what-ifs.

How does Float work with Xero?

  • Once Float is connected to Xero you can set your budget for bills and invoices on Float.
  • Float reads the payment dates on your bills and invoices that are uploaded to Xero.
  • Using those dates, Float creates a cash flow forecast of when the money will move in and out of your business.
  • Once the money moves, Float updates the cash flow statement with the actual payments.

Futrli

We also recommend Futrli for businesses that want to manage their cash flow properly. Futrli has user-friendly, easy to read dashboards that give you notifications on your clients, suppliers and credit score. It also helps you make cash flow decisions, such as calculating the right time for you to pay your bills.

How does Futrli work with Xero?

  • Connect Futrli to Xero and you will get an even more powerful dashboard that gives you a cash flow statement with key information on the metrics that are important to you.
  • Futrli uses AI software to give you daily predicted cash flow forecasts quickly and easily.
  • Using the data from Xero, Futrli builds a better picture of your customers – for example, late-payers and credit score for each customer.

Talk to your suppliers

  • Contact your suppliers to discuss payment options. If you are struggling financially, you could talk to your suppliers about payment extensions, payment breaks or discounts.
  • But don’t forget to keep their financial situation in mind too. Keeping an open line of communication is important, especially in times of mutual struggle, for example, the global crisis of Covid-19.
  • Review your supply contracts to determine if you can reschedule or delay delivery dates or direct debit payments to a more convenient time.
  • Consider transferring all supply to one supplier as they could offer you discounts. But always call your supplier to discuss it first.

Talk to your clients

  1. Offer more ways to pay. If you offer more ways for your customers can pay you, you may find that you get paid faster. For example, do you offer monthly, quarterly or up-front payments? Can you offer discounts for annual payments? Do you offer payment through mobile apps such as Apple Pay, Android Pay, PayPal or bank transfer? These are options that may encourage your customers to pay you faster.
  2. Look at any clients who are set up on Direct Debit or Standing Order payment schedules. Are the payments going through on time? What is your procedure for failed payments? Can you automate the process so that you don’t lose time chasing failed payments?
  3. You can ensure good credit control by offering a shorter credit term for your clients to pay you than you pay your suppliers. For example, if your suppliers expect you to pay them within 60 days, you should expect your clients to pay you within 30 days.
  4. You can also speak to your clients about getting paid before work commences. This could be at 50% pay, just so you can purchase supplies or pay one month’s wages, for example.

Talk to your bank or financial institution

  1. Our tip here is to engage with your bank early.
  2. You should know exactly how much you need over the next 3-6 months. If you believe you are heading into cash flow difficulties, make sure you have evidence to show the bank.
  3. Talk to your bank manager about what they can offer you – for instance, working capital, overdrafts or short-term loan.
  4. Tell your bank what steps you have taken to manage your cash flow thus far and what you have done to mitigate the difficulties you are having. For example, have you spoken to your supplier yet, have you chased your clients for payment, have you reduced non-essential purchases or reduced staff wages?
  5. Make sure you read the terms and conditions to make sure you know how this loan will impact your future. The fine print is important when seeking loans from banks or financial institutions to help your cash flow management.

Reconsider your strategy in times of crisis or unprecedented challenges

  1. Revaluate how your business makes money and consider alternative ways to generate that income stream. For example, ramping up your online marketing strategy to attract new customers or if your primary markets are international, consider ways to increase sales locally.
  2. Find out if you qualify for any business Startup grants and supports in Ireland that can help you overcome challenges.
  3. Irish Revenue has also announced Covid-19 related schemes to help businesses that struggling due to the Coronavirus pandemic.

How can we help?

We’re offering free premium subscriptions to Xero as part of our Startup Offer for new companies. Saving you €40 per month.

This offer is only €159+VAT per month for 18 months and includes:

  • Tax applications – Corporation Tax, VAT, PAYE, RCT, VAT MOSS, EORI
  • Tax filings with Revenue
  • Annual Return filing with Companies Registration Office (CRO)
  • One Directors Tax Return
  • VAT returns for up to 30 transactions
  • Free Premium subscription to online accounting software Xero

If you would like to receive a quotation for our Startup Offer, please get in touch with our Client Services Team. Email hello@accountantonline.ie or call us on +353 (0)1 905 9364.

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