Bionic's small business cashflow guide

Managing cashflow is one of the most vital things for small businesses to stay on top of. No matter how successful your business is - or is going to be - a poorly managed cashflow situation can scupper you before you even get going.

However, small business cashflow management is notoriously difficult, particularly for startups. That’s because you may need to spend more cash than you are taking in as revenue, even if your business is otherwise well run and solvent.

This guide will help you to understand how to better manage your business cashflow and what you can do if you run into problems.

Why is cashflow important to a small business?


Cash is no longer king for the consumer, so why is it so important to small businesses? That’s because cashflow is the lifeblood of business. If you have a constrained cashflow, it could affect your ability to invest in stock, equipment or staff, or to pay any outstanding debts you may have.

Keeping an eye on your cashflow is particularly important if you are a business where revenue is not steady - for example, if you cannot guarantee when customers or clients will pay their invoices. If this is the case, there is a danger that you could run out of cash at a vital time.

You will also need a healthy cashflow to pay for any unexpected costs that may arise, especially if you are a new business. If you do expect any problems with cashflow, then a business cashflow loan could be the solution.

How can a business run into cashflow problems?

There are myriad ways that any small business can run into cashflow problems, and knowing some of the common causes of these issues can help you to either avoid or manage them.

Things to look out for include:

  • Underestimating startup costs - There are many, many costs associated with starting a new business and some of these may not be immediately obvious. That’s why underestimating your costs when you are getting your enterprise off the ground is a very common cause of cashflow trouble for a startup business.
  • Expecting profitability too quickly - Just as they might underestimate startup costs, many new businesses may also have overly optimistic forecasts in terms of their profitability. Many successful businesses take longer than they expected to start generating revenue, leading to constrained cashflow.
  • Overlooking high overhead costs - Cashflow problems are more likely if your business has a large number of overhead costs. These could include rental payments for vehicles or premises, or even extensive staff travel requirements. Cutting your overheads, if it’s viable for your business to do so, is a quick way to help maintain a healthier cashflow.
  • Collecting receivables too slowly - However successful your business may be, if customers are slow to pay then you will find yourself short of cash. Invoice financing is a type of cashflow finance for small businesses that could help to address this all-too-common problem.
  • Growing too quickly - You may think that growing your business quickly is good news. And, in general, you’d be right. However, sometimes it can be problematic. For example, if you start receiving big orders from clients and have to increase your production capacity or staffing to cope with them, you may be left short of cash to pay their wages. In cases like this, short-term financing solutions, such as a business cashflow loans or bank overdrafts, might be the best way to go. 
  • Low profit margins - Profit margins are perhaps the most important metric to look at when assessing the financial health of a business. No matter how many sales you are making, if your prices are too low or overheads too high, then your profit margin will be small - and this in turn can lead to cashflow issues. Raising prices, even by just a fraction, is an excellent way to increase cashflow for a small business.
  • Not creating a cashflow budget - A cashflow budget is an incredibly useful tool when it comes to learning how to build cashflow. A cashflow budget keeps track of what cash you expect to receive and what you expect to spend in any given month. It can give a snapshot of your cashflow position at any time, and help you to anticipate problems.

How does cashflow forecast help a business?

If you are serious about managing your cashflow effectively, getting and maintaining a cashflow forecast is a great place to start. A cashflow forecast (or cashflow budget) can be used to help you visualise all possible expenses your business might incur over a given period of time, and how much it could expect to recoup in terms of payments from clients.

A cashflow forecast can be created on a monthly, quarterly or annual basis. If your business is relatively large, you might want to get help from an accountant. However you choose to put one together, a forecast is likely to be an important tool to stop you getting into cashflow difficulties.

How to manage your business cashflow

Now you know how important keeping tabs on cashflow can be, you might want to think about how best to manage it. Here are some things to keep in mind:

  • Keep your books accurate and up to date - Good book keeping is key to any successful business. If you know what money is coming into your business and what expenses you are going to incur, you will have a much greater chance of staying on the right side of cashflow problems.
  • Don't be too lenient with your customers - There is a tough balance to strike when it comes to chasing payments from customers. You don’t want to be overzealous and scare off someone who might be a reliable, regular customer. But at the same time, if you are waiting too long to get paid, you could end up in trouble and even, in a worst case scenario, go out of business.
  • Keep your accounting simple - This is particularly good advice for a new business. If you need to, hire a professional accountant to help. It’s better to spend the money on an expert than to get into trouble because you are unable to stay on top of things.
  • Keep your business and your personal finances separate - A mistake many small businesses make when starting out is to mix personal and business expenses. However, unless you keep these separate you may not know how much revenue your business is truly generating, and cashflow issues could sneak up on you very easily.
  • Build a cash reserve - Building up a good cash reserve is perhaps the best thing you can do to shield your business from cashflow worries. With a strong cash position, you can both protect yourself from unexpected expenses like a large tax bill and take advantage of new opportunities that require a large initial outlay - for example, a big order from a new customer.

How can business finance from Bionic help with cashflow?

If you are worried about your business cashflow, Bionic can help you find a business finance solution. We can source business cashflow loans from dozens of lenders, offer advice on the right loan for you, and get you the best price on the market.

If you need a different type of financing, our team of experts can talk you through what other options might be available.

Give us a call today if you have any worries about how cashflow might affect your business.