Cashflow is something that affects all businesses – from sole traders and entrepreneurs to global corporations. It’s perfectly normal to see fluctuations in cash flow, but it’s something you need to keep an eye on to make sure it doesn’t interfere with the normal running of your business.

What causes cash gaps?

Cash gaps are expected for almost every business, and it doesn’t necessarily mean your business is in trouble. Essentially, a cash gap is when you (temporarily) have too many outgoing payments and not enough incoming payments.

For example, in any given month you may need to pay for stock or materials, wages, bills and other expenses. If your customers take six weeks to pay, you may end up with two weeks where you’re short on cash needed to pay for your next round of expenses. You’re not necessarily in debt, because you know the payment is coming – but it does mean you might not be able to purchase more stock or pay other bills until the payment comes through.

Planning for good cash flow

The first step to managing your cash flow is simple planning. Make sure to track all your incoming and outgoing payments, to identify where there’s a gap. Your bank may already provide some useful features like this as part of their internet banking package, or you can look around for some cash flow management apps to help.

Where you can, try to ensure your customers have short payment terms and try to plan expenses around the dates when customers should have paid their invoices, to ensure you’ve got enough cash.

Arrange an overdraft with your bank

Even with lots of planning, you’ll likely still end up with some cash gaps – for example from unexpected expenses, or late payments from customers.

An overdraft is a good way to manage your cash flow because it means you have an extra fall-back to tie you over during cash gaps. You can just dip into it when you need it, and pay it off when your payments come in. Most current accounts – business and personal – come with an optional overdraft, but you’ll still need to apply for it and get approval from your bank.

Make use of a credit card

Another option is a credit card, which allows you to pay for big expenses up front, and then pay them off once cash starts to flow in again. It acts as a good buffer and means you can make the purchases you need when you need. Just make sure to plan ahead, so you know you’ve got enough cash coming in to pay off your credit card as well as all your usual expenses.

Set aside a pot of cash

Finding surplus cash can be tricky for entrepreneurs, but try to factor savings into your budget. Setting aside a little each month means that if you face a sudden unexpected expense – like a new laptop, van or tools – and you’re waiting on payments from customers, you’ll have extra cash set aside that you can use.