If you’ve ever had a profitable month on paper but struggled to pay your bills, you’ve run into a cash flow problem.
For small businesses, especially those just starting out, understanding cash flow is essential to staying afloat and growing sustainably.
In this post, we’ll break down what cash flow really means, why it’s not the same as profit, and how keeping an eye on it can help your business avoid unnecessary stress.
What Is Cash Flow?
Cash flow is simply the money moving in and out of your business.
It measures how much actual cash you have available at any given time, not just what you’re owed or have invoiced.
There are two types of cash flow:
- Cash inflow: Money coming into your business, such as customer payments, loans, grants, or VAT refunds.
- Cash outflow: Money going out, including rent, wages, suppliers, tax bills, and subscriptions.
Your net cash flow is the difference between the two over a given period (usually monthly or quarterly).
Cash Flow vs Profit: What’s the Difference?
It’s a common misconception that profit means you’re financially healthy.
But a business can be profitable and still run out of cash.
Profit is what’s left after you deduct all your expenses from sales.
It includes sales made on credit and costs you haven’t paid yet.
Cash flow, however, is about when money actually moves.
For example:
- You invoice £5,000 today, but don’t get paid for 60 days. That’s profit, but not immediate cash inflow.
- You buy stock today but don’t sell it for a month. That’s an immediate cash outflow, even if profit comes later.
Why Is Cash Flow So Important?
Poor cash flow is one of the top reasons small businesses fail. Here’s why it matters:
- You need cash to pay bills, not just profit.
- Late payments from clients can leave you short despite healthy sales.
- Unexpected expenses can cripple your plans if you’ve no buffer.
- Cash flow visibility helps you plan ahead for tax, VAT, and investment.
Without healthy cash flow, you may:
- Miss supplier payments
- Delay staff wages
- Fall behind on taxes
- Lose growth opportunities
At Legacy Figures Accountancy, we help you manage your books and improve your cash flow.
Want to learn more? Let’s have a chat.
Signs of a Cash Flow Problem
Many business owners don’t realise they have a cash flow issue until it’s urgent.
Watch out for:
- Regularly using personal funds to cover business expenses
- Struggling to pay bills on time
- Holding a growing accounts receivable balance (unpaid invoices)
- Delaying purchases or payroll
- Surprise overdraft charges
If any of these sound familiar, it’s time to start tracking your cash flow more closely.
How to Improve Cash Flow
The good news is that small changes can have a big impact.
Here are some proven ways to improve cash flow:
- Invoice promptly and clearly – Add payment terms, due dates, and late fees.
- Chase overdue invoices – A polite reminder can go a long way.
- Shorten invoice payment terms – Consider 7 or 14 days instead of 30.
- Review and reduce unnecessary expenses – Small subscriptions add up.
- Set aside funds for VAT and tax – So you’re not caught short at deadline time.
- Use cash flow forecasting – Plan for high or low months in advance.
Final Thoughts: What’s Best for You and Your Business?
Cash flow is the lifeblood of any small business. It’s not just about how much you’re earning—it’s about what money you have on hand when you need it.
Even if your business is profitable, keeping a close eye on cash flow helps prevent stress, late payments, and surprise shortfalls. A little planning goes a long way.
If you’d like help understanding your numbers or putting a cash flow system in place, we’re here for you.
If you have any questions or need some guidance, get in touch today for a friendly, no-obligation chat.
