Everyone knows that having access to finance is an essential part of running a good, and sustainable, business. But having cash in the bank to cover your everyday expenses is easier said than done.

Operational cash flow can often be the last thing on the mind of a business owner trying to keep profits up and costs down. Often, money can be thrown at a business in the urgent desire to make it grow. But access to an operational cash flow is more important than having high-profit margins.

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What is Operational Cash Flow

Shockingly, a recent study found that 82% of businesses suffer from poor cash flow, meaning that insolvency could be just around the corner.

Your operational cash flow tells you how much money is in the business on a day to day basis. Sometimes referred to as working capital, an operational cash flow forecast can cover periods of up to two years.

Having cash in the bank is different from making a profit, and knowing this is essential to the survival of your business. Because cash flow measures the inflows and outflows of cash, it shows you a more realistic picture of the money available to you. Seeing profit increase may feel good but you can easily be left with nothing to show for it.

Keeping your business sustainable isn’t just about creating profit, it’s about having access to funds that allow your business to keep ticking over. Operational cash flow provides you with the means to buy stock, pay your employees and grow your business.

Depending on your attitude to risk, or your confidence in your financial management, you can keep more or less money in the bank depending on your needs. But a good rule of thumb for any business is to have 3 – 6 months’ reserve.

Get the job done

Having a positive trend in your operational cash flow means that you can get the job done. Making sure you can afford to take on and complete projects means that you look reputable amongst your clients, and can increase the amount of business you do.

Retaining good customer relations is essential to good business practice. In fact, a study by Marketing Metrics shows that businesses have a 60% – 70% probability of selling to an existing customer, whilst the probability of selling to a new customer drops significantly to 5% – 20%.

Businesses that deal with project work are particularly susceptible to the effects of poor operational cash flow. And for project-based businesses it’s essential to have good customer relationship management.

Because income is often dependent on getting the previous job done, project-based businesses often play a game of catch up, particularly in the early stages of growth.

Keeping an eye on operational cash flow, and in turn, having enough cash in the bank is essential to getting projects off the ground. Getting the job done, and keeping your business reputable, is vital to further growth and remaining in the black.

Tech Stack

Keeping an eye on your cash can seem like a chore.

Often, business owners hire accountants and bookkeepers to do the work for them. With the large variety of accounting add-ons available on the market, there are ways and means of working with your advisors to gain further control over your finances.

Regardless of whether you monitor your finances with a financial advisor, or by yourself, integrating a tech stack into your management systems can grant you transparency into the movement of cash in and out of the business. Invoice management tools like Arbitrue streamline the bookkeeping process for you, allowing you to keep on top of your invoices with minimal effort.

Additionally, cash flow tools like Float can show you the reality of your cash at a glance. By integrating with your accounting software, Float pulls through your invoices and bills to show you exactly how much cash you have in the business.

Integrating a tech stack can allow you to gain control over your operational cash flow. With increased insights, reduced manual data entry, and streamlined processes, you can monitor the cash in your bank to ensure that the daily operations of your business run smoothly.

Keeping operational

Keeping on top of your cash flow, as well as keeping a cash cushion in your bank, is vital to the viability of your business.

Operational cash flow is the means by which you can get your daily operations sorted. Without it, you can be left high and dry. Making sure you have enough money to keep you afloat is essential to growing your business and securing your future.

Author: Catriona Bane

Catriona Bane is a Marketing Assistant at Float Cashflow Forecasting.

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