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Why company cash flow provides a window into financial health

May 19, 2023 Red Flag Alert Updated On: May 19, 2023
Why company cash flow provides a window into financial health

When operating a business, the greatest challenge is often keeping your finger on the pulse and ensuring that cash flow is always sufficient. Cash flow is the lifeblood of a business, as without it or in the event of a cash flow deficiency, company operations can quickly screech to a halt.

Cash flow is used to maintain the daily running of a business. It can indicate how much profit a business is making and can help predict the total revenue for the year. Company cash flow is an accurate barometer to measure financial health and is often used by business owners and accountants to determine whether a business is in the red or black.

David Tattersall, Head of Client Relations at Handpicked Accountants, an online directory designed to help businesses find an accountant near them, explains why company cash flow is a crucial data point that shares more than just basic financial information about a business, and other routes through which the health of a business can be assessed.

What story can company cash flow tell?

Company cash flow refers to the output of cash running in and out of a business. While an unrestricted and plentiful flow of cash is essential to a healthy and thriving business, cash reserves can be disrupted by many mitigating factors, such as changes in consumer appetite, a turn in economic conditions, or the transition between trading seasons.

Looking at the cash flow of a business paints an image of how well it’s thriving and indicates its historical and future position. The easiest way to tell how a business is faring is by checking whether the company's cash flow is positive or negative.

When cash flow is positive - If cash flow is positive, the business will likely be sufficiently supported with a strong stream of cash which matches or exceeds the rate of cash leaving the business. If a business is cash flow positive, it will be less reliant on additional funding to fuel operations and be able to raise cash to settle basic company liabilities.

When cash flow is negative – If cash flow is negative, this means that there’s more cash leaving the business than there is entering, which highlights an imbalance. Negative cash flow can be concerning as the business can quickly run up debts if it is unable to settle liabilities.

Measuring the cash flow of a business is an understated tool that can often be used to forecast whether a business is likely to run into financial difficulty without turning to additional funding sources, or taking on board company restructuring advice to increase the efficiency of business operations and maximise limited company cash flow.

Monitoring the financial health of businesses

Credit risk management tools are often deployed by businesses to provide an additional layer of security when engaging with other businesses or extending credit. They help indicate the risk level of a business and are typically based on the following factors:

  • Financial position
  • Liquidity
  • Legal notices
  • Accounts filing history
  • Credit score
  • Insolvency action
  • Strike off request
  • Dissolution

When measuring your own cash flow, it can help to have a finger on the pulse of the industry. Red Flag Alert enables you to monitor businesses of interest by providing financial data from thousands of sources across the UK. So you can monitor customers, partners, prospects and competitors, to ensure that no one interrupts the flow of your cash. 

We can also provide you with ways to increase your turnover and sales opportunities, by giving you the details you need to target your next customer. Accessing a new customer base with accurate and up-to-date details of the decision-makers is a guaranteed way to boost your cash flow. 

Why not get in touch today to see what Red Flag Alert can do for your business? 


Published by Red Flag Alert May 19, 2023

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