Expert cashflow tips – how the big players manage cash effectively

How do successful business people keep on top of their cashflow management? It’s a question that many business owners and finance directors would love an answer to. With cashflow so integral to your financial health, staying in control of cash can often mean the difference between business success, or business failure.

We’ve gathered together some of the most insightful quotes from entrepreneurs who’ve made a big impact in the business world, with practical advice on achieving positive cashflow.

1. Understand the mechanisms of business

“I need calculated risk-takers, I need to understand they have a basic understanding of the mechanisms of business. I assume they understand what the P&L is and why cashflow is important.” Deborah Meaden, business leader, entrepreneur, ‘dragon’ and investor

Numbers drive your business. So if you’re clueless when it comes to accounting terminology and the basics of financial management, you can’t fully understand your business.

Being able to read your profit and loss report, balance sheet and cashflow statement are key skills for any ambitious business owner. These reports tell you what income and costs you’re incurring, what assets you have in the business and – crucially – whether you’re successfully balancing your cash inflows against your cash outflows.

This information helps you to know where you are now, so you can plan where you want to go next. And any decisions you make, or calculated risks you take, are based on these numbers.

2. Keep your eyes on the cashflow numbers

“Never take your eyes off the cashflow because it’s the life blood of business.” Richard Branson, entrepreneur and founder of Virgin

Cashflow is the life force that powers your business. If more cash flows out of the business than flows in, you can’t cover your overheads, you can’t pay your people and you can’t settle the bills your suppliers send you. In short, without the requisite cash you simply can’t continue trading.

To achieve the ideal ‘positive cashflow’ position – where cash inflows are greater than cash outflows – it’s vital to keep your eyes on those cashflow numbers. And the cashflow statement is your key report when it comes to managing this precarious balance.

The cashflow statement shows you the specific cashflows from operating activities, investing activities and financing activities – giving you the full picture of your cash position.

3. Be disciplined about your use of cash

“We’ve demonstrated a strong track record of being very disciplined with the use of our cash. We don’t let it burn a hole in our pocket, we don’t allow it to motivate us to do stupid acquisitions.” Steve Jobs, tech entrepreneur and founder of Apple Computers

Money in the bank doesn’t equal good cashflow. Even a company the size of Apple has to be disciplined about the acquisitions it makes, the day-to-day expenditure it incurs and the revenue pipeline it aims to protect and nurture.

Having cash now doesn’t mean you will have cash in the future. And best practice is always to be prudent with the cash you have. Splashing out on shiny new premises you don’t need, or making a vanity acquisition of a competitor will drain your capital and cash reserves, potentially leaving you in a risky cashflow position if circumstances change.

Stay lean, take good care of your cash and only make large purchases when there’s a sound and value-driven reason for that expenditure.

4. Don’t just focus on profit and loss

“We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas.” Michael Dell, entrepreneur and founder of Dell Technologies

There’s a temptation to have your eyes glued to the company profit and loss report – with your focus only on ‘going faster’ to generate bigger and bigger profits. But if you let the company’s cashflow position slide, there may be no business left to generate profits at all!

Cashflow statements and cashflow forecasts should be a key part of your board’s management information, and need to feed through into budgeting, scenario-planning and any large-scale strategic planning that you undertake as a business.

5. Learn to interpret a cashflow forecast

“I don’t think it would be acceptable to sit on the board of a company without being able to interpret a cashflow forecast” Martha Lane Fox, Baroness Lane-Fox of Soho, CBE, founder of lastminute.com

Cashflow forecasting is a key element of financial management and planning. As a board, any business decisions you make should be based on the most detailed, solid and robust information, and having a clear projection of your future cash position is vital.

Rather than looking at purely historical cash numbers, modern cashflow tools, like Fluidly, take your accounting data and extrapolate it forward into future periods. The value of this is huge, allowing you to forecast your cash position next month, next quarter or even 12 months down the line – and helping you to factor these numbers into your planning and decision-making.

Get proactive with cashflow management

As any successful entrepreneur will tell you, if you take care of your cash then you’re setting the best possible foundations for the future success of your venture.

The key is to be as proactive as possible about tracking your different cashflow streams, reviewing your cash numbers on a regular basis and taking action to mitigate any potential cashflow challenges that you may face.

There are more tips for improving cashflow, and getting the very best from your company’s finances, in our Fluidly blog.