Cash flow: What is it and why is it important?

Published: 23rd April 2020

As a small business owner, you need to know how much money you have in your company at any time. It is vital to know you can pay any bills due from suppliers, or to cover VAT or other expenses that could make or break your business if you fail to hit the deadline.

Finding this out is not always easy, because you need to be up-to-date not only on what income is expected in the coming days and weeks, but also what money you have in your accounts, and even in the till if this is the type of business you have. The all-encompassing name for this is ‘cash flow’ and it is the lifeblood of your business.

Why do I need to know my cash flow?

If you are not on top of how much money is going in and out of your business at any time, it can create problems which have a knock-on effect for other things. For example, let’s say you have an unpaid invoice for a company you have worked for. That invoice could be the one that gives you enough to pay the VAT bill which is due soon after it was supposed to be paid. So, their tardiness in giving you that money means you have another problem stored up, this time with the taxman. This is the one payment you cannot afford to delay.

So, what do you do?

Many business owners will reach into their own pockets to cover the cost of the VAT, if they can afford to. But that creates another debtor for the business, and potentially a problem for the owner. If this money has to come from a third-party, then interest will be charged. So when the late payment eventually comes through, it might not be enough to pay back the business owner in full.

Do this a few times, or for one big business payment, and suddenly you have a personal debt hole that could begin to impact everything from your ability to get a mortgage to a mobile phone. All because a company paid your business late, and you were not prepared for it.

How does Muse solve this problem?

Muse gives you cash flow statements in real time, so you know exactly what you have coming into and out of your business at your fingertips through the mobile phone app.

Even better than that, Muse gives you real-time cash flow forecasting, telling you when such issues might be on the horizon, allowing you to plan ways to head them off without putting yourself in a personal financial hole.

Get money in your account on unpaid invoices within 24 hours. If you know you have a bill coming up, but you have not received payments due, Muse gives you the chance to turn that waiting invoice into cash within 24 hours. So, instead of dipping into your own pocket, all transactions remain within the business.

It is a vital difference that could help keep you and your business afloat. But this is not a loan so no interest is charged. You are effectively selling the invoice to Muse, and will pay a proportion of that invoice, usually around 10%, for the facility. But it is a one-off transaction, and one you can repeat on other invoices over time.

Back in our December blog we reported on the Dun & Bradstreet report which showed outstanding invoices for small businesses had risen by almost a quarter from £63,881 in 2017 to £80,141 in 2018. The battle for these businesses to stay afloat is very real, with nearly a fifth owed between £100,000 and £500,000 at any time.

The result is that as many as 90% of SMEs fail within the first 18 months, and in most cases it will be because they took their eye off their cash flow, or because they did not know what they were looking for in the first place.

Don’t let your business fail because you didn’t know your incomings and outgoings in real time. Find out more about Muse here and be one of the first to benefit from the new way to get business done.

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