Turnover is vanity, profit is sanity, but cash is reality. It’s an old line in accountancy circles and it’s worth repeating, because plenty of small businesses still get caught out by it. You can be profitable on paper and still find yourself short at the end of the month. Profit and cash aren’t the same thing, and the gap between them is where most cash flow trouble starts.
The good news is that managing it doesn’t need to be complicated. Most of the small business owners we work with in Salisbury and across Wiltshire who never seem to have cash flow stress all do roughly the same five things. None of them take long.
1. Forecast Cash, Not Just Profit
When you look at your profit and loss statement and the number’s healthy, it’s tempting to relax. Trouble is, a P&L tells you what you’ve earned, not what’s sitting in the bank. Those two figures often disagree by a wide margin, which is where businesses get caught out.
A basic cash flow forecast fixes most of it. Even a simple spreadsheet that lists money in and money out over the next 13 weeks will change how you make decisions. You’ll see a quiet month coming before it lands. You’ll know when the VAT bill is due. And you’ll spot the point where a big incoming invoice tightens things up before it loosens them again.
You don’t need to predict perfectly. You just need to stop being surprised.
Habit: Update your 13-week cash flow forecast every Friday. Ten minutes a week buys you a month of warning.
2. Invoice the Day the Work Is Done
This one sounds obvious, but it’s the biggest cash flow drag we see in practice. Work finishes. The invoice sits in someone’s “to do” list for a week. The client’s payment terms are 30 days. They pay late anyway. Fifty days later, the money finally arrives.
Move “invoice when the work’s done” up that chain by even a week and you’ve recovered cash without lifting a finger. Drop your payment terms from 30 days to 14 and you’ll typically gain another fortnight.
Some practical wins:
- Send the invoice the day the job is finished, not at month end
- Keep payment terms short and visible on the invoice (14 days is increasingly the norm)
- Put everything they need to pay you on the invoice itself: bank details, reference, due date
- Use accounting software that chases unpaid invoices automatically, so you don’t have to
3. Keep a Cash Buffer You Don’t Touch
A healthy small business has a buffer. Money in a separate account that you don’t touch unless something genuinely unexpected happens. A loyal customer goes bust. Equipment breaks. A quiet quarter turns into a quiet half-year. These things happen, and they happen to plenty of otherwise healthy businesses.
The classic rule of thumb is three months of operating costs. For a lot of businesses, especially in the first few years, that’s a stretch. Start with one month and build it up when you can.
The important bit is keeping the buffer somewhere you can’t get at it easily. If it’s in your main current account it’ll feel like spendable money, and you’ll spend it. Open a separate savings account, label it Reserve, and forget about it.
4. Separate Tax Money the Moment It Lands
Every payment a client makes is partly yours and partly HMRC’s. The trouble is that the whole sum lands in the same bank account, so it all feels like yours until the tax bill turns up. At that point you’re scrambling, even though the money was always going to be due.
There’s a simple habit that fixes this. Every time a payment comes in, move the tax portion straight into a separate savings account. For a sole trader on the basic rate that’s roughly 25 to 30 per cent (income tax plus National Insurance). For a limited company, set aside enough to cover Corporation Tax and any dividend tax. If you’re VAT registered, treat the VAT element as never having been yours, because it isn’t.
When the tax bill eventually arrives, the money is already there. You don’t feel it leaving because it never really felt like yours to begin with.
5. Review Costs Quarterly, Not Whenever
Costs creep up on you. Software subscriptions you forgot about. A supplier whose prices went up two years ago without anyone noticing. A service you signed up for to solve a problem you’ve since fixed another way. Individually they don’t seem worth bothering about. Add them all up and you’re often looking at a few hundred pounds a month. Sometimes more.
Half an hour every quarter is plenty of time to find them. Pull up the bank statement, look at every recurring outgoing, and ask one question of each: is this still earning its keep? Anything that isn’t, cut.
A review like that will usually find you more money than chasing one extra sale, and it costs nothing to do.
Why This Matters Beyond the Numbers
The real reason we push these habits isn’t about the money in your bank account. It’s at least as much about how you feel running your business.
Business owners who have cash flow under control sleep better. They make better decisions, because they’re not making them under pressure. They can take opportunities when they come up: the right hire, the right piece of equipment, the right investment in something that won’t pay back for eighteen months. Owners without that buffer tend to say no to those things, even when they’re the right call, because the timing never quite works.
Cash flow stress eats up bandwidth that should be going into growth. Getting it under control gives you the space to think more clearly. That’s part of why we combine accountancy with personal coaching at Caboodle. The numbers and the person running the business are tied together more closely than most people realise.
Want a Second Pair of Eyes on Your Cash Flow?
If you’re not sure where your cash is actually going each month, or you’d like help building a forecast you’d genuinely use, our bookkeeping services in Salisbury can give you clearer records and reporting. We’d be happy to talk. We work with small business owners across Salisbury and Wiltshire on this sort of thing day in, day out. It’s the proactive, plain-English support we focus on, rather than just filing a return once a year.
Caboodle Business Support Ltd is based locally in Salisbury. Our small, experienced, dedicated and enthusiastic team offer an accounting service that always starts with the question “What’s your story?”. The answer to that question – and plenty more – is the start of a deeper connection with clients that makes doing business more three dimensional and satisfying.
Between us, we offer something a bit different from a typical accountancy firm: we care about how your business actually runs, not just the accounts that get filed at the end of the year.
Have a look at the services we offer and how we work with our clients. When you’re ready, get in touch and we’ll set up a chat.