Being a small business owner or sole trader brings many challenges. For most, bookkeeping is one of the hurdles they find hardest to jump over. But it needn’t be hard, and part of great business management involves a particular area of bookkeeping – cash flow. As a solopreneur or small business owner, how much ‘cash’ you have will never be far from your mind. It’s an integral element of your day-to-day running. But actively managing your small business cash flow may be overlooked, and often not utilised to its full potential. There are ways to maximise your business and your cash flow, and they all revolve around great cash flow management. We’re going to delve into the 10 most important reasons for managing your small business cash flow.

What does Managing your cash flow mean?
Managing cash flow is one of the most critical aspects of running a small business. It involves tracking the money coming in and going out of your business, ensuring that there is always enough money to pay your bills and yourself. But it’s more than that too. It’s a way to identify products or services that are doing well and should be kept, it’s a way to ensure your business survives and it should be linked to your business plan and strategy.

Why you should manage your small business cash flow
1. Meeting tax obligations

As a solopreneur or sole trader, you have to pay taxes on time to HMRC, and managing your cash flow ensures that you have enough money to pay your tax bill on time. Late payment of taxes can result in penalties and interest charges, which can be costly for your business. Part of managing this can be simple – use software or business bank accounts with separate pots and put aside a predicted amount from each invoice to go towards tax. That’s managing your business cash flow for tax!

2. Keeping track of the trading allowance

The trading allowance is something I am asked about a lot by small business owners and side hustlers because it is often misunderstood. You can learn more about it here. But the key thing is, if you are planning to use the trading allowance, you must keep records. If you’re not keeping an eye on your cash flow, you won’t know where you stand with the trading allowance.

3. Managing stock and materials

Cash flow management is an essential part of managing inventory. By keeping track of your stock levels and sales, you can avoid overstocking and reduce the amount of money tied up in inventory and make sure that the funds are available if you need to buy essential supplies for a custom order. 

4. Paying yourself 

Paying yourself is a critical part of running a business as a solopreneur or sole trader. By managing your cash flow, you can ensure that you have enough money to take a regular income, if you are not aware of outgoings, this could affect your ability to take drawings from the business.

5. Identifying cash flow gaps

Cash flow gaps occur when there is a delay between when you pay your bills and when you receive payment from your customers. By managing your cash flow, you can identify these gaps and take steps to bridge them.

6. Making informed business decisions

Managing your cash flow provides you with important information about your business’s financial health. This information can help you make informed decisions about product selection, pricing, and other areas of your business.

7. Avoiding cash flow problems

Cash flow problems can be a significant challenge for solopreneurs and sole traders, and they can be caused by a variety of factors. By managing your cash flow, you can avoid these problems and ensure that your business stays on track. If you know what’s going in and out and how much ‘slack’ you have in your business bank account, then you are less likely to come across an unbridgeable hurdle.

8. Staying on top of profit and loss

Managing your cash flow is an essential part of tracking your business’s profit and loss. By understanding your cash flow, you can identify areas where you can improve your profitability. This will help to grow your business more quickly and in the right way. There’s no point continuing to make and sell bowties if no one is buying them or if the profit margin on them is too low. 

9. Preparing for emergencies

Managing your cash flow can help you prepare for emergencies. By building up a cash reserve, you can ensure that you have the resources to deal with unexpected events, such as a drop in sales or a natural disaster.

10. Maintaining a healthy work-life balance

Managing your cash flow as a solopreneur or sole trader can help you maintain a healthy work-life balance. By ensuring that you have enough money to pay your bills and yourself, you can focus on your business without worrying about financial stress.

So there we have it, the top 10 reasons for managing your small business cash flow. You can see that cash flow management is crucial for solopreneurs and sole traders in the UK. It can help you avoid cash flow problems, meet your tax and personal financial obligations, and help you make informed decisions about product selection and pricing. By staying on top of your cash flow, you can build a strong and profitable business that is well-prepared for whatever the future may bring.
If you need support with managing the cash flow in your small business, then jump into my membership, it’s our focus this month!

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