Cashflow is often described as the lifeblood of a business, and for good reason. A company can be winning new customers, generating healthy sales and even showing a profit on paper, yet still run into financial difficulty if there isn’t enough cash available to pay bills when they fall due.

Many business owners only look at their finances when preparing year-end accounts or meeting with their accountant. By then, opportunities may have been missed and financial problems may already have developed.

Reviewing your cashflow every month allows you to understand exactly how money is moving through your business. It helps you identify potential issues before they become serious and gives you the information needed to make better commercial decisions.

What is cashflow?

Cashflow simply refers to the movement of money into and out of your business.

Money coming into the business could include:

• Customer payments
• Deposits
• Loan funding
• Investment income
• Grants
• VAT repayments

Money leaving the business could include:

• Staff wages
• Rent and utilities
• Supplier invoices
• Marketing costs
• Software subscriptions
• Equipment purchases
• Tax payments
• Loan repayments
• Insurance premiums

Positive cashflow means more money is coming in than going out over a period of time.

Negative cashflow means the opposite.

While negative cashflow isn’t always a problem in the short term—particularly during periods of investment—it needs to be managed carefully.

Why cashflow is different from profit

One of the biggest misunderstandings among business owners is believing that profit and cash are the same thing.

They aren’t.

Your accounts might show that you’ve made a £100,000 profit during the year, but if your customers haven’t paid their invoices yet, you may not actually have the cash available to cover wages, suppliers or tax bills.

Equally, you could have plenty of cash in the bank after receiving several customer payments, but still be making a loss if your costs are consistently higher than your income.

Understanding this difference is essential.

A profitable business can fail because of poor cashflow.

Why monthly reviews matter

Reviewing your cashflow every month gives you a regular opportunity to understand the financial health of your business.

Instead of reacting to problems, you can plan ahead.

Monthly reviews help you answer important questions such as:

• Are customers paying on time?
• Are expenses increasing?
• Will there be enough cash to pay VAT?
• Can the business afford new equipment?
• Is it the right time to recruit?
• Are profit margins changing?
• Are overheads becoming too expensive?

Having this information available every month makes business decisions much easier.

What should be included in a monthly cashflow review?

A useful cashflow review should cover several areas.

Money coming in

Look at all sources of income.

Ask yourself:

• Which customers have paid?
• Which invoices remain outstanding?
• Are payments arriving later than usual?
• Are sales increasing or slowing down?

Late payments are one of the biggest causes of cashflow problems for small businesses.

Money going out

Review all regular expenses, including:

• Rent
• Wages
• Utilities
• Software subscriptions
• Marketing
• Loan repayments
• Insurance
• Supplier invoices

Look for subscriptions or services you no longer need.

Small monthly costs often add up to significant annual expenditure.

Upcoming tax liabilities

Many businesses forget that tax bills do not arrive every month.

Corporation Tax, VAT, PAYE and Self Assessment can create large one-off payments during the year.

Planning ahead helps avoid unnecessary pressure when these deadlines arrive.

Outstanding invoices

If customers owe you money, your cashflow may look healthier than it really is.

Review aged debtors regularly.

If invoices are becoming overdue, it may be time to strengthen your credit control process or follow up outstanding balances sooner.

Warning signs your cashflow needs attention

Businesses should investigate if they notice any of the following:

• Customer payments arriving later each month.
• Increasing overdraft usage.
• Regularly delaying supplier payments.
• Difficulty paying VAT.
• Falling cash reserves.
• Relying on personal funds to cover business costs.
• Frequently using credit cards to pay business expenses.
• Having to delay investment because cash isn’t available.

Spotting these warning signs early gives you time to take action before they become serious.

Forecasting future cashflow

Looking backwards is useful.

Looking forwards is even more valuable.

A simple cashflow forecast estimates:

• Expected customer income.
• Planned expenditure.
• Tax payments.
• Payroll costs.
• Major purchases.
• Seasonal fluctuations.

Forecasting helps answer questions such as:

“Can we afford another employee?”

“Should we invest in new software?”

“Will we have enough cash after paying VAT?”

Business owners who forecast regularly tend to make more confident decisions because they understand what’s coming next.

The role of bookkeeping

Reliable cashflow information depends on reliable bookkeeping.

If transactions are missing, invoices haven’t been entered or bank accounts haven’t been reconciled, your reports won’t reflect reality.

Good bookkeeping allows you to:

• Produce accurate management reports.
• Track customer payments.
• Monitor expenses.
• Prepare tax returns more efficiently.
• Make decisions using current information rather than outdated figures.

Without accurate bookkeeping, forecasting becomes guesswork.

How accounting software can help

Modern cloud accounting software provides business owners with live financial information.

Many systems allow you to:

• Connect directly to your bank account.
• Raise invoices.
• Track customer payments.
• Monitor expenditure.
• Generate management reports.
• Forecast cashflow.
• Store receipts digitally.

Used properly, accounting software provides far more than year-end accounts—it becomes a valuable management tool.

Practical ways to improve cashflow

If your cashflow needs improving, consider:

• Sending invoices immediately after completing work.
• Chasing overdue invoices promptly.
• Asking for deposits on larger projects.
• Reviewing payment terms with customers.
• Negotiating supplier payment terms where appropriate.
• Removing unnecessary subscriptions.
• Building a cash reserve for quieter periods.
• Setting money aside for tax throughout the year.
• Reviewing pricing to protect profit margins.

Small improvements across several areas can make a significant difference.

Why your accountant should be in volved

Many business owners only contact their accountant once a year.

In reality, accountants can provide much more value throughout the year.

Regular reviews allow your accountant to identify trends, discuss upcoming tax liabilities, highlight opportunities and help you make better-informed commercial decisions.

Rather than simply preparing accounts, they become a valuable adviser helping you plan for growth.

Final thoughts

Cashflow isn’t just an accounting measure—it influences almost every business decision.

Reviewing it every month allows you to stay in control, prepare for future commitments and avoid financial surprises.

Businesses that regularly monitor their cashflow are often better positioned to invest, recruit, grow and respond to changing market conditions.

At Merranti Accounting, we help business owners move beyond year-end compliance by providing meaningful financial information throughout the year. With accurate bookkeeping, regular management reporting and proactive advice, you can make decisions with confidence rather than relying on your bank balance alone.

Written by Steve Watts