Your business is busy, orders are coming in and sales are looking healthy. On paper, everything seems to be going well.
So why does it sometimes feel like there’s never enough money in the bank?
It’s a situation many businesses experience, particularly when they’re growing. And while making a profit is important, it doesn’t always mean you have enough cash available to cover everything that needs paying.
Making a profit and having cash available are two different things
Imagine you’ve just secured a £50,000 contract. That’s great news for your business, but before you can deliver the work, you need to purchase materials, pay staff and cover other expenses.
Your customer, however, won’t be paying you until 60 days after you’ve completed the job.
Suddenly, you’ve got a profitable contract but still need to find the money to fulfil it.
That’s the difference between profit and cashflow. Your business might be earning money, but the timing of when that money actually reaches your bank account can make a big difference.
Growth can sometimes create cashflow pressure
It might sound strange, but the busier your business becomes, the more pressure it can put on your finances.
Taking on additional contracts, purchasing more stock or recruiting staff can all mean spending money before you receive payment from customers.
And it’s not just growing businesses that experience this.
Seasonal trading, unexpected expenses or customers taking longer than expected to settle invoices can all affect how much cash you have available.
The important thing is understanding what’s causing the pressure rather than simply looking at how much money the business is making.
Could business finance help?
Depending on your circumstances, there may be different ways to support your business’s cashflow.
For example, working capital finance may help businesses manage short-term funding requirements, while invoice finance can provide access to funds against eligible unpaid customer invoices.
However, taking on additional borrowing isn’t always the answer.
Sometimes reviewing payment terms, improving how quickly invoices are collected or planning ahead with a cashflow forecast can make a difference.
It’s worth understanding the reason behind the cashflow shortage before considering which approach might help.
It’s not always a sign that something is wrong
Experiencing cashflow pressure doesn’t automatically mean your business is struggling.
Sometimes it’s simply a question of timing, particularly when you’re taking on new opportunities or waiting for customers to pay.
But understanding what’s happening with your cashflow can help you make better decisions about how to manage the months ahead.