But watch out: it’s easy to lull yourself into a false sense of security as many people assume that cash in the bank is ‘profit’ and therefore belongs to them as the owner. This, however, is rarely the case. The funds in the bank merely represent a snapshot in time of our business. Without knowing the wider picture of trading performance plus the status of receipts and payments, the level of cash in the bank tells us very little indeed.

So, how can you easily keep an eye on the cash inflows and outflows in your business without taking away precious time from running it? Having grappled with this issue not only with my clients, but also with my own businesses, allow me to give you a few pointers. 

Use more than one bank account

Many businesses use one bank account for all their transactions. While this might work operationally, the account becomes a ‘melting pot’, making it impossible to draw any conclusions from its balance at any one time. Instead, why not use three bank accounts, as follows:

1.     A Current Account – Used for daily transactions.

2.     A Tax Savings Account – Of all the bills you have to pay, the most important ones are those from the tax man which must always be paid, on-time, at all costs. To ensure you always have enough cash, transfer your estimated VAT, Corporation Tax and payroll taxes into a separate account. Your book-keeper or accountant should provide you with your trading profit and tax creditors at the end of every month.

3.     A Profit Savings Account -  At the end of every month, move the month’s profit after tax into a third bank account. As the owner, this is what’s left for you. But before you get excited and start withdrawing your hard-earned cash you should think about doing the following:

Leave 10-20% of the profits in the business until you have built up a sufficient  ‘war chest’ – what we call a ‘contingency’ – for unexpected bills.

If you can, try to avoid withdrawing the profits straight away. In my business, I work on a one-month lag, again to make sure we’re covered for any last-minute costs which may come out of the woodwork.

Bear in mind that, depending on the timing of receipts and payments, there may not be enough cash in the current account to make these transfers. In such cases keep a note of the amounts you weren’t able to transfer and make up for this as soon as you are able. You should also make sure you’ve set aside your tax money before paying yourself otherwise you could end up in hot water with our friends at HMRC.

Beyond getting your bank accounts in order, what else should you be thinking about? Although interest rates may be low, you should make sure your savings accounts are earning a competitive rate. Fixed-term deposits can also be worth considering, but make sure you can still access these funds instantly should an emergency arise.

A ‘sweep’ facility can also be useful as it can prevent your current account becoming overdrawn (and unnecessary bank charges) by automatically transferring cash from one of your savings accounts when necessary.

If you don’t have online access to your accounts, set this up as a priority and make sure you check your accounts at least twice a week if not daily. Over time, you’ll soon get an idea of how much cash you can expect to see in your bank account at any given time and this can be the quickest way to spot if things are not going according to plan.

Good cash management is just like brushing your teeth. Do it regularly and you’ll avoid painful repercussions down the line.