Effective cashflow management is essential for all businesses, and your cashflow forecast is one of the most powerful business management tools – it helps you prepare for the year ahead and monitor growth.

Tracking your forecasted figures against actual spending helps you monitor your working capital and identify any areas where you might be overspending. By eliminating unnecessary costs, you’ll free up some cash to reinvest back into your business.

Here SWIG Finance’s business manager Rachael Taylor explores how to effectively manage your cashflow, and she also shares her top tips for controlling your spending.

What is a Cashflow?

Essentially, a cashflow forecast helps you to predict your business spending for the year ahead by recording the amount of cash flowing into and out of the business.

Cash received by the business represents the inflows, and monies spent represent the outflows.

You must include all of your business outgoings in your cashflow forecast to ensure that the document is realistic and accurate.

So, make sure to include all costs; manufacturing, staff, admin, legal, marketing, utilities including waste bills, and don’t forget to include your phone bills.

Even if you mainly use your phone for personal calls, your accountant may want you to include this in your overheads.

By monitoring your forecast against your actual spending, you will gain a deep insight into how the business is performing.

Cashflow Management

Why is Cashflow Management important?       

Cashflow management will play a critical part in the success of your business because positive cashflows create value for shareholders while making the business financially resilient.

As your business grows, so will your costs. By recording and monitoring your actual cashflow, you can ensure that your business maintains an appropriate level of working capital to ensure it can continue operating.

As the adage goes, turnover is vanity, profit is sanity, but cash is king for your business.

How to effectively manage your Cashflow

The key to effective cashflow management is to control your costs, as they do have a habit of creeping up.

It is therefore vital to monitor and review your costs and spending. Carry out this exercise annually and you’ll increase your profits – and you’ll have an accurate cashflow forecast to support your decision-making.

Payments – Where possible, take deposits in advance. You could consider offering incentives for upfront payments.
Supply Chain – Staying with your current supplier doesn’t mean you’re getting the best deal. But it’s also worth remembering that the cheapest deal may not be the best deal. Shop around and do your research to ensure you have the best deal for your business.
Equipment – For those using specialist machinery or equipment, instead of spending a large sum to purchase what you need, you could consider short-term leasing, which might be a more cost-friendly alternative. Similarly, if you have already purchased specialist machinery, consider renting it out during its downtime.
Surplus Requirements – Selling your excess capacity or product to another firm could help you create a new income stream. And it doesn’t just benefit you – selling excess capacity benefits the buyer as well. There are specialist companies that will broker these deals for you.
Energy Use – Investing into solar power does involve initial investment but could save you money in the long run. You may also consider investing in a biomass boiler which can be fuelled with waste materials – helping you save in disposal costs too. Again, biomass boilers do require investment, but it’s worth pointing out that Green Grants are available and exist for this purpose. Contact your local council to find out more about which green grants available in your region.
Invoices – Some businesses offer discounts for early invoice payments, but you could look at this from another perspective. How far can you stretch payment terms without incurring a penalty? Equally, don’t delay issuing your invoices as delayed payments create a knock-on effect to your cashflow.

Cashflow Management

What to do if you need additional Working Capital

Depending on your situation, you may find your working capital levels lower than you’d like. This can cause issues if a new opportunity arises that requires investment.

Being familiar with your cashflow will give you an early indication of whether your business may need external finance to boost its cashflow. It will also help you to illustrate and justify your requirement to lenders.

If you do find that you have a future need for external finance, be sure to apply for it before you need it – loan applications can be time-consuming and stressful.

We would always recommend that you speak to your bank as a first port-of-call for business finance. If your bank can’t help you, then it’s time to explore alternatives, such as your local Community Development Finance Institution (CDFI).

Cashflow Management – Support from SWIG Finance

SWIG Finance is the South West’s dedicated CDFI. We exist to support small businesses that are neglected from mainstream finance. Alongside loans, our business managers also provide support to help you prepare your application.

At SWIG Finance, we don’t use automated credit scoring methods. Instead, we get to know our customers and their businesses, and assess each application on its own merit.

Assessing a business on its current merit and future opportunities means that we can support projection-led businesses that demonstrate a stronger forecasted performance compared to previous years. By gaining an understanding of what sits behind the forecasts, such as contracts won and sales pipeline, we can base our decisions on the credibility of the forecasts.

About SWIG Finance

SWIG Finance is a non-profit company that supports viable South West businesses that can’t secure sufficient funding from their bank. By empowering underserved small businesses to overcome their financial barriers, we are working to create a more balanced financial ecosystem.

We’re growing every year. In 2022/23, we lent £14m to 478 businesses, helping to create and secure over 1,000 jobs and generate £44.6m in social impact. Download the report here.

If you’d like an informal chat about your funding requirements, get in touch with our friendly and professional team to see how we can help: info@swigfinance.co.uk / 01872 227 930.