The importance of cashflow

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Often the importance of cash flow and its impact on a company’s sustainability and success is ignored or not understood by small businesses. One of the most important part of what we do at Surrey Accountancy is to ensure our clients are educated on the importance of cash flow and how to maintain it.

As all small business owners know, we can never predict how quickly a client will pay us. Billions of pounds a year are owed in late payments to small businesses across the UK; and this is a serious consideration when managing your incoming and outgoing expenses.

A lack of disposable income is often a cause for many small and medium size businesses to close; that is why it is essential to use cash flow forecasts. By forecasting the cash flowing in and out of your company, there are fewer surprises and greater consideration for what projects you can and can’t accept based on material and related costs.

Your cash flow forecasts can enable you to ensure costs are kept affordable, and prevent you spending over the budget needed to pay for essential expenses; such as rent, materials, tax, etc. It can also help determine when you should request payments, payment terms, invoicing dates and more.

Sometimes it can be daunting to chase overdue payments from clients through fear of upsetting loyal clients or disrupting important business relationships. This gives even more reasoning behind why it is vital to predict your cash flow; as by doing so can help determine essential policies, terms and contracts that make the process of receiving overdue payments easier and clearer. Similarly, if cash flow forecasts highlight an issue with persistent overdue payments, this can lead to procedure reviews and to review credit agreements, communication channels, overdue payment processes and more.

Cash flow forecasting can also determine if your pricing and other essential elements of your business are effective. This is essential knowledge to understanding the sustainability of your business and if you have scope to scale up and grow to a bigger operation.

If you would like to discuss how Surrey Accountancy can help you with cash flow forecasts and more, please contact us here.

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