Seven things to know about cashflow | Barclays (2024)

What is cashflow?

Cashflow refers to the amount of cash coming into – and out of – a business.

Cash ‘inflow’ includes what the business receives from the sale of goods and services. Meanwhile, cash ‘outflow’ refers to payments a business makes to its suppliers, people, tax authorities and other similar expenses.

Why is cashflow important?

Cash is reality: getting cashflow right has a direct impact on the success of a business. Cashflow funds an organisation’s day-to-day activities, it influences what you can buy and it’s how you pay your team’s salary. But a good cashflow does more – it boosts confidence in a business and puts you in a strong position to negotiate with lenders, and secure better discounts from your suppliers. A bad cashflow, on the other hand, could affect your credit rating.

How can cashflow be improved?

Terms, technology and goals are three key ways to improve cashflow.

Terms

Poorly devised payment terms can slow an otherwise high growth business from day one. Know what terms your company needs before agreeing on them. If the nature of your business means customers don’t pay immediately, make sure they do so within a time limit that lets you meet the demands of your payroll and suppliers.

Technology

Like so many other things in life, technology can make cashflow management more straightforward. You can use apps and software to do everything from simulate possible cashflow scenarios, generate expense records to keep track of your spending, and automatically pull information from various accounts to monitor your cashflow with ease.

Goals

Strong financial planning underpins the long-term success of any business. Create forecasts and do what’s possible to stick to them. However, do not hesitate in adjusting your goals, up or down. Flexibility is your friend – work with the market and trading conditions to create and hit goals that suit your business’s journey.

How can I manage my cashflow while growing?

Growing a business often requires additional funding, as cash can be tied up in invoices and stock, while suppliers and staff may need paying sooner. In addition, change inevitably leads to unforeseen challenges. Funding may prevent or stop cashflow being a problem, but for a growing business it may not deal with the underlying cause which needs to be understood to properly take control of cashflow.

For a growing business it’s important to forecast the cash needs, as these often continue to increase. When considering funding options, bear in mind that loans require regular repayments, overdrafts allow for flexible repayment, while invoice finance typically grows as sales and invoices grow.

How can I maintain positive cashflow while seeking investment?

Investors will look at a cashflow statement to understand how a business has performed in the past and what it could potentially achieve in the future. But many businesses fail to protect their cashflow while they seek investment.

An effective way to stay cashflow positive is to make hiring and resource decisions that allow your team to meet the investors’ needs. Funding rounds are time and attention-intensive, so make sure your team is set up to do what they do best. Don’t allow investment activity to distract your team from meeting customers’ needs.

Should a business always aim to be cashflow positive?

Positive cashflow is not necessarily the ultimate goal for a business. In fact, some businesses will deliberately alternate between being cashflow positive and negative. For an example of a fast-growth company that did just that, read about leading architecture practice Resi here.

How is it calculated?

There is a simple formula to calculate a business' free cashflow: operating cashflow - capital expenditures = free cashflow. A cashflow statement will feature the figures that underpin the cash balance, which is a distinct record from a balance sheet as it does not include future incoming and outgoing cash.

Our Business Managers are here to support your cashflow journey, so if you’re looking to expand or require further guidance, please get in touch.

Seven things to know about cashflow | Barclays (2024)
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