Cash Flow

What is cash flow? Cash flow is the term used to describe the movement of money within a business If more money Is leaving a business than is coming in, this shows the business could be facing financial trouble.

If your business is having poor cash flow, it may be difficult to pay for essential supplies, employees and creditors. If the money coming in fails to cover outgoing spending, you are at risk of falling into debt.

Balance sheet test

Balance sheets give a breakdown of a company’s assets and liabilities – if the outstanding debt is more than the value of the company assets – your business may be at risk of running while unable to pay off debts.

The below elements should be included on a balance sheet:

  • Companies tangible assets (eg, machines, and vehicles used in daily operations)
  • Physical cash within the business
  • Breakdown of short- and long-term liabilities
  • Breakdown of any money owed to you – this is important for factoring in to pending funds

Should you find your company is rich in assets but with poor cash flow, this shows a problem with the long-term viability of your business.

Month-to-month performance

If your business is struggling to pay essential bills (eg, rent and utility payments) on a regular basis, this is a sign of a bigger problem.

Should you find yourself facing this problem, its important to have a plan of action ready early. The condition of the business could get worse and if you fail to make payments, you may end up having legal action taken against your business. If you are failing to make payments on time on a regular basis, you may need to reconsider your company’s financial strategy.

Alongside late payments, reaching the credit limit on any business credit cards can disrupt your businesses financial security as you have used up the emergency funding you have access to. This is high risk as if you have used up your available credit, your business has no breathing room from creditors.

However, if you are coasting month to month with enough to fund your bills and cover any additional cost/investment – this shows your business has a strong footing.

Off-target budgeting

Up to date and precise record keeping will allow you to keep within your budget and ensure your financial predictions are on target.   If your records are inaccurate, this could inflate the businesses perceived value and cause damage to the business.

Budgets can help business owners visually grasp the money within your business, if your budget is within it’s target, this can allow you to streamline financial strategies by identifying how the business can be more efficient.

Accumulation of bad debts and late payers

Inevitably, your business will face some customers, suppliers and clients who notorious for late payments. If this tardiness turns into not paying, you will have what is known as “bad debt”. A bad debt is when the prospect of a debtor failing to repay the funds owed to your company, which eventually results in this debt being written off.  A way of managing non-payment is to threaten legal action, this will deter late payments.


If you believe your business may be coming to the end of it’s financial lifeline, it is key to explore routes to keep your business afloat. Acting early and identifying pressure points is important to limit the damage to your business.

If your business is going along with no financial difficulties, it is still important to have measures in place in case of unforeseen circumstances to make sure you aren’t caught off guard and your business can financially support itself.