Managing Company Funds

If you are starting a business or trying to grow a business, it is important that you have a healthy cash flow. ll businesses aim for profit, but one good month just isn’t enough, you need a consistent cash flow. A business also needs to be able to manage fluctuations in expenses and payments too. Below we make suggestions that could really help your business cope throughout these fluctuations.

Funds In Reserve

We’d recommend a good amount to have as a liquid reserve is six months worth of costs if possible. This means that if you really needed to you could survive and stay afloat for six months without a sale. Obviously, this is extremely unlikely, but it could happen and you need to be prepared for it.

This could mean having some in an overdraft and some cash ready, we don’t expect anyone to have a substantial amount of cash flow ready as cash in hand but having the ability to have it in an overdraft if needs be could really save your business in financial hardships.

A minimum of three months worth of costs may be suited to your business needs and could still help you out a lot in any financial situation.


Having even three months in reserve could be a challenge and you may feel the need to monitor all expenses in detail instead. If this is the case then there are other methods to handle your cash flow as only startups and small companies should be looking as cash at a transactional level such as this.

If you’re a larger company, trying to create models that will monitor transactional expenses won’t necessarily work. You’d have to make broader estimates instead. For example, if a customer doesn’t pay their debts within a week, this shouldn’t stop you from having the funds to complete your payroll. This problem won’t be fixed by piecing together a focused short-term cash flow model. You should be able to make assumptions such as “on average, our debts are going to be collectable in five weeks.”

Be Clever

There are two types of forecasting: immediate cash flow and medium-term forecasting.

Immediate cash flow forecasting: This is a forecasting, but on a micro-scale. This will look at the money going in and out of the business from week to week. This could include financial details such as when you time your invoices, when is the best time to pay VAT and when to pay your wages.

Medium-term forecasting: This is usually a budget covering one to three years. This will look at any expectations regarding profitability, cash flow and expenses over a period of time. You will see and then identify patterns from month to month or year to year as there is such a wide overview. This type of forecasting allows for new opportunities when a period of the surplus comes around while being able to develop and support business plans and strategies. It will become easier to keep an eye on relationships with creditors and debtors too with medium-term forecasting and you will have the ability to understand how it impacts cash flow.

It is definitely worth checking what net cash you’re bringing in when monitoring your cash flow. If you look at one month’s trade, for example, you could have expected to have increased your cash position by £10,000 but only managed £7,000, this would mean you’re behind. However, you will easily be able to keep an eye on it. This is a much healthier style of cash management for a business as opposed to monitoring it at a transactional level.

Forecasting your business’ cash flow is great for a healthy business but also for your own peace of mind. However, if you apply for a grant or loan, your cash flow projections will be one of the first documents that are requested of you. A healthy company will ideally have some reserves, but do whatever if manageable for your business. It should also have a business plan and be generating cash. If you’re having to constantly micromanage your cash flow then something else is wrong and this won’t fix the issue.

If you need help with forecasting for your business and maintaining a healthy running business, then do not hesitate to call us on 01908 046964 or visit our website for a call back from one our Milton Keynes accountants.