What is Cash Flow?

Cash flow is the movement of money in and out of your business. Positive cash flow means more money is coming in than going out; negative cash flow means the opposite. It is the single most important metric for business survival — profitable businesses fail every day because they run out of cash.

Cash flow vs profit: You can be profitable but cash-poor. For example, if you invoice £50,000 in a month but clients take 60 days to pay, you have £50,000 in revenue on paper but potentially nothing in the bank to pay your bills.

• **Three types of cash flow:**
• Operating cash flow: — money from day-to-day business activities (invoicing clients, paying suppliers, wages)
• Investing cash flow: — money spent on or received from long-term assets (equipment, property)
• Financing cash flow: — money from loans, investment, or repaying debt

Common cash flow killers for UK small businesses: 1. Late-paying clients — the average UK SME is owed £8,500 in late payments 2. Seasonal fluctuations — quiet periods with fixed overheads 3. Over-trading — growing too fast without the cash to fund it 4. Tax bills — especially unexpected payments on account 5. Large upfront costs — buying materials or equipment before being paid

• **Improving cash flow:**
• Invoice immediately: — don't delay invoicing after completing work
• Use shorter payment terms: — Net 14 instead of Net 30 where possible
• Chase overdue invoices: promptly and consistently
• Request deposits: for large projects
• Forecast cash flow: — project income and expenditure 4–12 weeks ahead
• Build a cash buffer: — aim for at least 3 months of operating costs in reserve

Cash flow forecasting: A simple cash flow forecast lists expected money in and money out, week by week or month by month. It highlights periods where you might run short, giving you time to arrange overdrafts, chase debts, or delay non-essential spending.