Cash Flow Management

You’ve without doubt heard the old saying that “cash is king”. If cash is king, then cash flow is the lifeblood that keeps the heart of the business pumping. Once up and running, you’ll soon find out that cash flow management is probably the most important component of business success.

Without cash, profits mean nothing. A lack of cash means you will struggle to meet payroll and tax requirements. I’ve seen many a profitable business fail because the amount of cash coming in is less than the amount of cash going out. That’s why it’s essential that you get a handle on cash flow management from the outset.

Cash Flow ManagementWhat is cash flow? This is basically the movement of funds in and out of your business over a period of time.

What is cash flow management? Put (very) simply, this means delaying payments of cash out of your business for as long as possible, while encouraging anyone who owes you money to pay it as quickly as possible. In order to manage the cash flow function of your business, you’ll need to complete some form of cash flow forecast or projection.

This is difficult, to say the least, and is far from a well-defined science. As none of us have a crystal ball, any cash flow forecast is merely an educated guess as to when your customers will pay and when you’ll pay your obligations.

Step-by-step cash flow management

The following steps are a template and can be altered according to your own business processes:

  • Estimate the volume of sales that will be generated over the period of your forecast.

This needs to be as realistic as possible; it’s not a case of simply saying there’s a multi-million euro market for your product or service and you’ll receive a percentage of it. Try to base your numbers on facts. This can be difficult for a start-up as there’s no sales history. Try starting with per unit sales extended out by the average sales volume per day or week, and then multiply over a number of months. If you’re supplying a service, figure out how many productive hours there are in a day and multiply this by your hourly charge-out rate. (See Chapter 3 for advice on calculating your hourly rate.)

  • Figure out when these sales will be received.

How much will be cash sales and how much will be credit sales? Of the credit sales, when will they be received? You need to set down your payment terms and stick to them rigidly: the success of your business will be dependent on it.

  • Look at other forms of cash collection, other than sales.

If you intend borrowing from a bank or investor, you’ll need to include these amounts in your cash flow at the date on which they’ll be received. A cash flow analysis can be used to determine how much investment will be needed for your business and when it will be needed.

  • Disbursements (outgoings) of your business will also need to be considered.

If you plan to sell stock, you’ll need to purchase raw material and assemble it or purchase the goods from others for resale. This could involve a large cash outlay before any sale has been made. If you receive a line of credit from your suppliers, you’ll need to factor these payments into your forecast. If you plan to manufacture, you’ll need to ensure that you can produce enough stock to support the level of sales that you’ve predicted.

  • You may need to purchase machinery as part of your production process.

Include the cost of the machine and the expected payment date.

  • In order to reach the volume of sales necessary, you may need to hire employees.

You’ll need to factor in these costs.

  • As a start-up, you’ll possibly have several one-off expenses, as follows:
  1. Furniture
  2. Company set-up fee
  3. Signage
  4. Licence fees
  5. Website
  6. Graphic design.
  • You’ll also have other monthly outgoings, including the following:
  1. Rent and rates
  2. Light and heat
  3. Telephone and internet

It’s essential that you include every possible expense, as failure to do so may mean running out of cash due to bad planning.

  • Taxes will also need to be considered.

If you’re VAT-registered, you’ll be collecting ‘output’ VAT in your sales receipts and some of your expenses will include ‘input’ VAT. Simply deduct the ‘input’ VAT from the ‘output’ VAT and include this figure in the next month of your forecast.

  • If you employ staff, you’ll need to deduct various taxes and PRSI from their wages and pay it to the Revenue.

However, it’s sufficient to include the gross wage figure, as it already includes PAYE. This will also include your own wage if trading through a company.

If you’re trading as a sole trader, you’ll pay Income Tax on your annual profit – not the amount that you take from the business, i.e. drawings. It’s important to provide for this on a weekly or monthly basis to avoid a large tax bill at the end of the year.

How can Russell and Co. help you?

Our expert team have over 40 years experience helping Irish businesses. We can offer expert advice and guidance to ensure your business is a success.

Call our office on 021 4963679 or email

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