Cash is King: Understanding the cash cycle in your small business

old fashioned cash register

Peer to peer lending is all about sharing and collaboration, so today we’re delighted to have a guest article on the FundingKnight blog.  We want to make the blog interesting for all members of the FundingKnight community, including businesses looking for funding or those who have already used us for a small business loan and today’s guest author certainly has plenty of good advice for small businesses hoping to improve their financial management.


Steve Bicknell is the Group FD at SCA Group  He’s held a number of Directorships and created Accounting 4 Business.  He’s a fellow and Panel Assessor for CIMA and his blog and You Tube videos hold a wealth of tax and accountancy advice. Today, he’s talking about understanding cash flow, we hope it’s useful.

As the saying goes, Sales are Vanity, Profit is Sanity and Cash is King. The Cash Cycle also known as the Working Capital Cycle helps you to quickly understand how much cash you need to run your business.

Here is a great example from Steve Grice for an average business

Average time to collect payment from customers           60 days            plus..

Average days sales held in stock                                   25 days            less..

Average days taken to pay suppliers                             35 days            equals…

Cash cycle                                                50 days

This means that you need enough cash in your business to finance 50 days worth of sales. If your sales are £1,000,000, you will need cash of £136,900. In practice, your business will probably need more cash available than this to pay for rent, rates, wages etc. You may also get cash spikes at the quarter end if you pay VAT.

Here is a brilliant Cash Flow Improvement Tool from NAB

This model quickly and easily calculates your cash cycle but also shows the effect of making improvements.

Click here to read the rest of Steve’s post on find links to his other material.

This article was first published on and is re-posted with permission.


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