Cash flow (noun): the total amount of money being transferred into and out of a business, especially as affecting liquidity. 

Cash flow management is the process of keeping track of how much money enters and leaves your business, as well as analysing the data to make smarter spending decisions. There are two major things to understand about cash flow: negative and positive cash flow. 

• Negative cash flow: When you have a ‘negative cash flow,’ it means your business is spending more money than it’s making. Simple. But fear not, this doesn’t always mean the business is in trouble. Your cash flow may just be down temporarily, because of things like mismatched spending and income.
• Positive cash flow: A positive cash flow means a company is adding money to its reserves to pay for bills and other outgoings. However, a positive cash flow doesn’t always mean profitability. Having extra cash could be down to a loan or invoices that have not yet been paid.

Benefits of good cash flow management

Knowing all there is to know about company spending comes with many advantages. Here are some of the key benefits that effective cash flow management can have on businesses of all shapes and sizes

Make better business decisions 

When you’re working with the most accurate and up-to-date data, the chances of you making better spending decisions is higher. 

Centralised view of spending 

Knowing exactly what cash is flowing in and out of your business gives finance a better idea of overall spending, across all departments. 

Build business relationships 

It’s not just money you could be saving, it’s professional relationships too. Staying on top of cash flow means you’ll avoid having problems paying suppliers.

Know when it’s time to grow 

Understanding (and forecasting) your cash flow to a tee means you’ll know when it’s the exact right time for your business to expand. 

All there is to know about creating a cash flow forecast 

Stay in the know of cash flow using our free forecast template. Don’t worry, we’re here to help to make sure you’re accurately predicting finances. 

1 Understand each section

The template is made up of three sections: 

• Operating cash flow (main business activities)
• Investing cash flow (such as selling assets or making loans)
• Financing cash flow (money movements from cash inflows such as borrowing or repaying loans).

2 Adding in your data 

For each year, starting with the first column after the item descriptions, be sure to enter the corresponding cash flow amounts for each line item.     

Then work out your total calculations. This should include your cash from operations, investing, and financing.

3 Analysing cash flow

This template automatically totals the operating, investing, and financing cash flows. To make sure data is accurate, enter the cash balance at the beginning of the first year.

The form will also automatically calculate the closing cash balance by adding the net increase (decrease) in cash to the opening cash balance.

4 Customise your template

Cash flow isn’t a one-size-fits-all. This template allows you to design it better to suit your business needs. 

Add or remove columns to project further into the future. Adjust rows under each section for more detailed cash flow items specific to your business.

Top tips to ensure healthy cash flow 

Every business needs healthy cash flow to grow. It opens up doors to new markets, expanding your teams, and more marketing and advertising opportunities. Here are some top tips to make sure 

• Always stay in the know with accurate forecasting 
• Customise your forecast to align with changing market conditions
• It sounds obvious, but make sure there’s money left in the bank 
• Stay vigilant and plan for everything, even the things you don’t want to think about.
• Keep things simple, efficient, and transparent. 
• Automate processes where you can.                                                                          

Overcoming issues that come with cash flow forecasting

A cash flow crisis doesn’t have to happen overnight. With better planning and forecasting of spending, you’ll be able to spot the warning signs on the horizon. 

Unpaid suppliers

Regularly skipping payments to suppliers not only signifies that you’re not handling cash well, but it also means you’re running the risk of damaging business relationships. 

Late payments

It’s common not to get paid right away after providing a service or product, but if the books are starting to pile up with receivables that aren’t being paid in a timely manner, this could cause issues.

Out-of-date bookkeeping

If finance isn't sure which forecast is the most up-to-date or what your cash flow break-even point is for this month, catching an issue in the making is near impossible.

How Pleo can be a helping hand to streamline your cash flow 

Centralising your company spending doesn’t have to be rocket science. With Pleo, finance can stay in the know about every penny spent and set individual approval flows. 

More control, better visibility 

With Pleo Invoices, you can automate and streamline your entire automated approval process, from start to finish. With real-time tracking, you can see the status of each invoice payment. 

Automate tedious data entry

Too much time is spent manually dealing with invoices. Instead, allow Pleo to do the heavy lifting and replace tedious manual work with OCR technology that automatically populates data for you.