How to keep in touch with your cashflow


Mazuma co-founder Lucy Cohen shares expertise on monitoring and managing cashflow.

Lucy Cohen co-founded online accountancy company Mazuma 14 years ago. In a recent Eagle Labs event she shared her top tips for managing cashflow through the Covid-19 crisis.


Cashflow isn’t discussed enough. The focus in a business is often on profit, loss, the balance sheet and the tax bill but cashflow itself can go under the radar. I see it as the lifeblood of a business, which needs to keep pumping round for the business to stay alive.

In the current circumstances cashflow is absolutely key in keeping your business running. Although the primary way that businesses generate cash is by selling their product, there are lots of different ways to think about cashflow and how it will affect your business. It’s all very individual, but hopefully some of these hints and tips will help.

To start with, let’s separate the definitions of profit/loss and cashflow in financial terms. You have your income and all the expenses calculated against your income. That comes off your income figure and gives you a bottom line, which is what your tax bill is based on. If you incur more costs than you bring in money then you end up with a loss, and if you bring in more money than you spend in costs then you end up with a profit.

However, it is possible to have a profit and no cash or a loss and lots of cash! Your bank balance is not your profit and loss account. It’s important to understand the difference between those two things.

Typically, money is accounted for when an invoice is raised but not necessarily when it is received. Although it would be accounted for as part of profit and loss, the cash itself might not be in your bank for 30 days – depending on your payment terms. That is why the difference between profit and loss and cashflow is so important.

Keeping your cashflow healthy

Businesses are no different to individuals. We spend cash that is there, as well as cash that isn’t there. The key to making sure cashflow is working for you is that those things are done in appropriate way.

  • Check that cash is coming in. We see an awful lot of small business owners spending a huge amount of time working, but finding themselves too busy to do their invoicing. Invoicing apps are a good way to make it easier to get money into your account through sales and timely billing.
  • Consider the payment terms you’re offering. Do you need to leave a 30-day payment window, or could it be shorter? You might also be able to consider a 50% deposit service, with the rest of the payment given on completion. That could hopefully avoid bad debts (in which a customer doesn’t pay any of the money owing).
  • Watch your expenses, but consider your options. It’s easy to take a drastic approach to cutting expenses back when things are tight. Of course, now is the time to review what is really essential and what could be trimmed (do you pay for software you barely use?). But you should also talk to your suppliers – they might be open to giving you a reduced fee for a short time, on the basis of your continued custom after the crisis passes.
  • Regular and predictable cashflows are useful to have. You know when cash is coming out when you have them on direct debit, which is why subscription models work so well.
  • Mazuma was the first business to have a subscription-based model in the accountancy sector. Could you make your service into a subscription? If it works for you, it could be a great way to make cashflow more predictable.
  • Stay on top of your tax bills. Try to put money away for it each month, so that it doesn’t sneak up on you when it’s due. That can help particularly if your order books aren’t as healthy in the second half of the year as the first, for example – you’ll still have the cash to hand.

Make the most of support available

These are, to say the least, unusual circumstances. Nothing says more about the importance of cash than the extent of the government’s support schemes. Assess whether the support available is right for you – it’ll be different for every business – by checking your bank balance. If you didn’t get any income for three months, how much runway would your cash give you? Most businesses do not have cash in abundance.

The government has brought in some new measures, and boosted elements of some existing ones. Some might be useful for your business.

  • VAT can now be deferred to June. It’s important to note that that money will need to be repaid and you still have to file returns on time regardless, but it is a reprieve from immediate cash outgoings.
  • Use the furloughing scheme where needed. The government saw 67,000 people apply within the first half an hour, and some businesses have been reluctant to put strain on the system: but if it is needed in your business then make use of it.
  • Could you use Time to Pay? This HMRC scheme has always been there, but more businesses may need it at the moment. You and HMRC can arrange a payment schedule for your tax bill over a certain number of months rather than in one lump sum if you don’t have the cash available. It’s not a scheme to use all the time or every tax year, but if you need it then investigate your options with HMRC.
  • You could even arrange a time-to-pay system of your own, giving your customers a similar chance to spread payments over months (while still keeping cash coming in).

Set good habits

Finally, there are some good habits to set in place. The most important is to check your bank balance at least once a day. You can do it on your phone at any time. Although this might feel about as fun as weighing yourself after Christmas, it’s key to keeping on top of your finances.

  • Having checked your balance, keep track of who hasn’t paid you yet. Then chase them up!
  • Get comfortable with the detail of your financial reports, understanding the difference between terms – like, for instance, cashflow and profit/loss. Similarly, get to grips with cashflow forecasting. Even if you really would rather not, it’s vital to keep sight of your forecasts and keep them as a living document that you use to understand where your bank account will be in a month, 3 months, 6 months, a year. All you’re doing is predicting your bank balance in months to come. If you can predict your position (and you’ll improve at this) you can make better business decisions – investing or raising a round of equity, for example. You can start asking yourself how to raise more cash if you can see a cash gap coming. Forecasts are not a crystal ball or perfect but they help – they’re not fun but they’re vital!

In summary then, there are three main tips that all businesses should keep in mind. Firstly, look at your income and check where and when money is coming in. Secondly, check your expenses – and make sure that you’re making the most of the payment terms available to you. Lastly, get on top of cashflow forecasting. It’ll make you a more agile business in a difficult time.

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