Lack of cashflow is the number one cause of failure in small businesses. Even profitable businesses still run out of cash. This can because they’re not forecasting their cashflow requirements properly as they grow (See our webinar on How to Scale Without Cashflow Chaos https://youtu.be/hmPssYUINWY?si=8nRJW-KGaAQfZRQy )
But sometimes businesses are busy tracking the wrong thing. Your profit and loss is only one of the reports that you should be looking at regularly. This doe not show:
- Timing differences between invoicing and payments
- VAT and corporation tax due to HMRC are big lump sums that still seem to surprise some business owners
- You might also have cash tied up in stock, work in progress and other uninvoiced work, and prepaid costs
- Directors, loan accounts often accumulate an overdrawn balance when director/shareholders help themselves to cash and call it ‘dividends’ without carrying out the necessary solvency checks beforehand.
Ideally you should have a proper cashflow forecast and there is software that will connect to Xero (and other software) to help you to do this for yourself, or with our help.