Cashflow management

What is cashflow?
We’ve all heard the phrase ‘cash is king’ and with good reason. Good cashflow management is arguably the single most important skill any business owner must learn, and the sooner the better.

Cashflow sums up the pattern of cash paid out (expenditure) and cash coming into the business (income) over a given accounting period. So, if you sell products valued at £100,000 in a month and have outgoings of £40,000 over that period, you have a positive cashflow of £60,000.

The aim of any business is to be cashflow positive. However, life’s not always that simple. The key is to ensure that the positive cashflows you make in one month are managed effectively and can support you in any negative cashflow periods.

Just starting out in business?
NatWest offers a range of support to new businesses including two years' free business banking

In business it makes sense to put money aside to cover future known expenditure – and unexpected items as well. This is where business savings accounts can be most helpful – giving your business the structure to make regular savings that you can call on when you need it.

By taking the time to understand your cashflow requirements over a 12 month period, it is possible to segment your cash under short, medium and longer term needs. This can help you take a structured approach to cash management and maximise returns by finding the best solution for your business goals.

Every business needs to set money aside to pay tax and other regular bills. An instant access savings account such as Direct Reserve gives you the opportunity to earn more on your surplus business funds in the short term. And it’s easy to transfer money in and out on a daily basis using online banking. Tax Saver and Bonus Saver both offer instant access and bonus interest if you make a limited number of withdrawals over a three month period.

NatWest instant access accounts:

• Direct Reserve
• Reserve for Businesses and Community Organisations
• Tax Saver
• Bonus Saver

If you need to save for major purchases – such as plant and equipment – it makes sense to put money aside in a longer term savings account. These generally pay the highest interest and let you access your funds at fixed future maturity dates tailored to your cashflow needs.

NatWest longer term business savings accounts:

• Treasury Reserve

Sometimes you just need to know you’ll have spare cash to cope with emergencies. This could include having to repair or buy new equipment or even helping you through a poor trading period. Having money in a business savings account can help you get over these difficulties and carry on trading with confidence.

Plan for future tax expenses by saving today

When your business has to find funds to satisfy a tax bill, it can have a serious effect on your cash flow – especially if the sum is larger than you anticipated. We recognise the challenges associated with business tax and have created Tax Saver, a flexible business deposit account, to help you save to meet tax bills.

You can earn interest on the cash you set aside to pay your tax bill, and quarterly interest bonuses if you make three or fewer withdrawals each quarter.

NatWest offers a range of products, services and support to help businesses take control of their cashflow.

• Overdrafts - additional borrowing facilities for business current account holders
• Tax Saver – lets you earn interest on the cash you set aside to pay your tax bills, and pays quarterly bonuses when you make three or fewer withdrawals each quarter.
• Business planning online - helps you forecast the effect lower sales or slower payments will have on your cashflow
• Invoice finance - gives you access within 24 hours to up to 90 per cent of the value of your invoices.
• Asset finance - buy business assets without tying up your capital.

Need more information?
This is just a brief guide to cashflow. For more information read our Business School’s cashflow toolkit or download our Cashflow Report for 2009.