Where cash hides in your business

1-minute read

A healthy cash flow is the lifeline of your business. Get the balance of in- and outgoings right, and it’s likely to flourish. Get it wrong, and your business may falter.

Uncovering untapped cash resources in your business can help you stay on track. Learn more in part three of our cash flow video series.

Key take-outs
  • When cash flow is interrupted, it starts to pool.
  • This flow is called working capital cycle (WCC).
  • Cash can hide in three main areas of your business.
     

Money hides in the areas of your business where you’ve spent money and not yet received cash from a sale. It becomes tied up in processes and cannot flow freely until it re-enters the cycle.
 

It can be helpful to think about this as a stream of water, with cash flowing into your business, through each process, and back out again. If this flow is slowed or stopped, it causes cash to pool, or hide.
 

There are three main areas that may cause cash to pool:
 

  1. Buying stock causes cash to pool until the stock is sold.
  2. In service industries, resources are tied up in the ‘work in progress’ or WIP pool until a job is complete.
  3. When goods and services are provided to customers on credit, the cash cannot re-enter the flow until their payment is made.
     

This flow is often referred to as the working capital cycle (WCC).
 

Knowing where cash may hide in your business can help you ensure that your money keeps moving through the cycle as smoothly as possible, which enables you to invest more of your profits into growing your business.

Read more

How to create a cash budget

Your business will always need cash to grow. Here’s a guide to producing a cash budget that could help you keep track of your cash flow and plan for the unexpected.

Options to cover cash shortfalls

When you’re planning to achieve positive cash flow, it’s worth factoring in how to allow for unexpected expenses and seasonal downturns in income.

Improving your working capital cycle

What is working capital, and how does it affect cash flow? Check out these tips on how you could get your assets working harder for your business.

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Things you should know

This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business.