Where does all the cash go in your business?

Cash is a funny thing in business, it seems to be there one minute and gone the next! But where does it all go and what can you do to manage it better?

There are three ways of generating and spending cash and all of them need to be understood and looked after really well.


Operating activities are the things you do in your business every day that relate to generating income. These include revenue from sales and all the costs that go with that, including the cost of supplies, salaries, heating, lighting and anything else that you would consider normal business expenditure.


Financing activities relate to the money that you raise to finance your business and the surplus that you need to repay the capital on any debt. They also include paying dividends to shareholders, which is important as the most significant shareholder is likely to be you!


Investing activities are the money that you spend and the revenue that you earn on long-life assets such as property, vehicles and equipment. Investing activities also include investment in other businesses or assets if you’ve built up sufficient cash reserves to allow you to do this.

Is it possible to say which of these activities is the most important? No. All three are essential.

Of course, operating activities are the bread and butter of your business and if these aren’t generating cash, you will have to look towards borrowing money or raising money from investors to give you the liquidity you need to stay afloat. This is often the scenario in an early stage business while a product or service is being developed and a market is being established. Later stage businesses might have the option of cutting operating costs or divesting of assets to give them the cash boost they need.

If operations aren’t generating enough cash, it can also make it difficult to maintain repayments on loans. This could hamper raising the finance in the first place as a lender will look at the current performance of the business and calculate the extent to which there is capacity to repay the borrowing. If a loan has been raised in the past, falling behind on it could lead to the lender taking pre-emptive action to protect its position. In the worst-case scenario, this can mean appointing administrators and the business being put into liquidation.

And let’s not forget, if a business is struggling to meet its liabilities, it’s unlikely to be paying the shareholders, principally you, an income!

Unfortunately, there are many recent high-profile examples of businesses not generating enough cash to support their operating and financing activities: Jamie’s Restaurants, House of Fraser and British Steel to name only three. The specific reasons why the cash wasn’t there might differ and be argued – anything from the economy suppressing demand to bad management – but the result was the same.

Planning, using and controlling the cash in your business

As the owner of a small business, you won’t have the scale of operations to manage that these well-known brands have, but the principles are identical. You need to maintain a short and long-term view of your cash health so that you can stay in business, generate an income and realise your ambitions.  Business operations might not constantly generate the cash that is needed, but this is OK providing you know what your situation is and can act at any time to manage it.

We have built CaFE exactly for this purpose. Each morning, our users get an update on their cash position with a short-term projection highlighting any short-falls or surpluses that might occur and direction on the actions that need to be taken. CaFE will also create a longer-term budget in just one-click, which can be used to test different scenarios: the affordability of new equipment, the impact of losing a customer or the ability to repay a loan, for example.

These businesses are freed from the burden of keeping spreadsheets up to date with balances and movements in bank accounts, credit cards, sales performance and budgets. Instead, they let CaFE do it all for them.

Designed for busy business owners that don’t have the time or the experience to undertake detailed cash flow forecasting on spreadsheets, CaFE is easy to use and could be the difference between success and failure. Take a look and sign-up for a free trial today.

Go on, it’s on us.


May 30, 2019 by Makoto Fukuhara Categories: Accountants and bookkeepers