Why managing your cash is so essential right now

According to the Office for National Statistics (ONS), the UK’s inflation rate has decreased to 7.9% for the year ending in June. This is positive news as the rate of price increases is slowing down. However, it’s important not to become complacent and to continue monitoring your finances closely. In the current economic climate, managing your cash is so essential right now.

The inflation rate has dropped due to the decrease in fuel prices, which is positive news. Additionally, the increase in food prices is slower than it was in June of last year. However, the Bank of England is facing difficulties in reducing the underlying inflation rate. It is anticipated that there will be a minimum rise in the base interest rate of a quarter percent at the upcoming meeting next week.


Cash really is King right now

With increased supplier prices, continued rises in interest rates, and high annual inflation, managing your business’s cash and understanding the flows is a vital tool in maintaining resilience and being able to adopt flexible strategies for success.

Let’s look at the online giant Amazon and how it recognises the importance of cash in a business.

Amazon has demonstrated the significance of cash flows by introducing a flexible financing program. This program enables businesses to obtain funding based on their sales and repay the amount as they earn.

In collaboration with the financing provider You Lend, Amazon has launched a merchant cash advance program, which provides eligible UK-based businesses selling on Amazon.co.uk with a flexible financing option. This option offers greater cash flow flexibility in addition to the fixed-term business loans already offered by Amazon Lending. It is expected that more businesses will adopt similar arrangements in the future to provide “elasticity” to their customers.

The cash flows of a business reflect all the incoming and outgoing cash. By analysing the direction of cash flows, owners can gain insights into the health of individual products or services, as well as overall market patterns. That’s why managing your cash flow is essential.


What’s stopping you from having a proper cash-flow forecast?

No matter how inventive or simple your business model is, you can still have problems with cash flow.  As business owners, we know this, yet so many businesses fail to get a grip on their cash position.  Why?

Traditionally you’ve been used to looking at your year-end accounts and having a “feel” for how much money is around. But is this still relevant in a fast-moving world?

We understand that as a business owner, time is a crucial factor. There never seems to be enough time in the day to accomplish everything. You constantly prioritise tasks, and unfortunately, cash-flow forecasting may not always be at the top of the list.

In the past, it was acceptable to rely on borrowing (if the need arose) because there was an abundance of funds available, and borrowing was affordable. However, currently, this is no longer the best option.

If you have a small team, it’s possible that your finance department (if you have one) may lack expertise. Your internal finance personnel may have been managing bookkeeping and VAT functions for some time and may be comfortable with their current workload. However, any additional tasks could potentially add more stress to their daily lives.

A lot of small and medium-sized enterprises (SMEs) continue to rely on multiple systems to manage their financial data. It’s common to encounter businesses that use spreadsheets to create a cash flow forecast and then spend a considerable amount of time sifting through the results. This practice is an inefficient use of valuable time.

We find that most SMEs are “all hands-on deck” kind of businesses.  Often the daily tasks of getting sales invoices raised and chasing money take more of a priority rather than looking at a growth strategy and managing the cash.

If this sounds familiar, you are not alone. It’s a widespread problem.

Many SMEs are too busy looking at the work they must do today and think cash flow is tomorrow’s problem. But this is a huge mistake. If you want future success for your business, you must get a grip on your cash.

By consistently monitoring your cash flow and gaining a clear understanding of your financial position in the upcoming month and quarter (as predicting beyond that is challenging), you can identify any gaps and potentially discover opportunities for growth.

The idea is also to avoid nasty shocks.  Shocks like you have no money to pay the tax bill or how to meet your own debts if your biggest customer pays you late.

Given the uncertainty of the current economic climate and the unpredictability of customer and supplier behavior, we highly recommend that you focus on effectively managing your cash flow at this time.

We can help you to do this. We have access to software that will connect to your cloud accounting system. We are happy to prepare the forecasts for you but if affordability is an issue let us train you to use the systems we have.  There will be some automation so it will not be as time-consuming as dealing with spreadsheets.

If you want to find out more email your client manager at Myers Clark.  If you are not yet working with us here’s how we work