Chartered Accountants

Karen Szotek BSc ACCA
Joanna Grant BSc ACA

Phone: 01786 430830


No business can survive for long if it fails to make profit. However, if it has insufficient cash it may not survive the day! Cash is the lifeblood of the business. Whether it’s due to your employees, suppliers, or your accountant, failure to pay a debt when it falls due can have dire results. You cannot continue to do business, no matter how profitable, without having cash when and where you need it.

Of course cash, for this purpose, can come in many forms. Access to a bank account with funds or an overdraft facility is fine as is a credit card as long as you are within the working limits. Appropriate accounting information is vital to allow you to monitor your cash position and hopefully foresee times of shortage. Annual accounts are very unlikely to be sufficient for this purpose and some kind of more regular management information will almost certainly be required. However, it is likely that only a few significant figures will need to be monitored to ensure that the cash supply is adequate and there are no major clouds on the horizon.

Your bank balance should always be checked on a regular basis, weekly is usually often enough but more often if circumstances indicate this is necessary. However this will only provide information about your position in the very short term. You will also need to identify those factors which will affect your liquidity in the medium term and monitor these. The key numbers will vary depending on the type of business you are in but will probably include items such as sales, debtors, and stock. We will be happy to discuss which ones are key to your business.

If you are applying for a loan or an overdraft from your bank, you will probably need to produce a cash flow forecast. The purpose of this is to look forward and make your best guess of the inflows and outflows of cash over the coming months, usually for at least one year ahead. Unlike the annual profit and loss account or the balance sheet, which are accurate reflections of events which have already taken place, the cash flow forecast, like any forecast, cannot be absolutely precise in its predictions. What you should be able to see are those times in the future when your cash resources are under particular pressure and try to take early preventative action.