Cashflow Management

All about cash

Cash is the measure of your ability to pay your bills on a regular basis. This, in turn, depends on the timing and amounts of cashflowing into and out of the business each week and month - your cashflow.

Cash includes:

• coins and notes
• current accounts and short-term deposits
• bank overdrafts and short-term loans
• foreign currency and deposits that can be quickly converted to your currency

It does not include:

• long-term deposits
• long-term borrowing
• money owed by customers
• stock

Difference between cash and profit

It is important not to confuse cash with profit. Profit is the difference between the total amount your business earns and all of its costs, usually assessed over a year or other trading period. You may be able to forecast a good profit for the year, yet still face times when you are strapped for cash.

Cash is king

To make a profit, most businesses have to produce and deliver goods or services to their customers before being paid. Unfortunately, no matter how profitable the contract, if you don't have enough money to pay your staff and suppliers before receiving payment, you'll be unable to deliver your side of the bargain or receive any profit.

To trade effectively and be able to grow your business, you need to build up cash reserves by ensuring that the timing of cash movements puts you in an overall positive cashflow situation.