Cashflow is the lifeblood of any business.

You can have strong sales, a great team, and bold plans, but if the money going out doesn’t match the money coming in, you’re in trouble.

Managing cash reserves and liquidity isn’t about hoarding cash; it’s about keeping your business flexible, resilient, and ready for anything.

But let’s be honest: most business owners didn’t start their company because they love cash flow forecasts!

The reality? Good businesses can fail just because they don’t manage their cash well.

So, let’s break it down into simple, actionable steps that will help keep your business financially healthy.

Why Cash Flow Matters More Than Profit

A profitable business can still run out of cash.

Sounds crazy, right?

But profit is just a number on paper; cash is what keeps the lights on.

Here’s why:

• Timing Mismatch – You might have invoices worth thousands, but if clients take 90 days to pay and your bills are due in 30, that’s a problem.
• Growth Squeeze – Expanding too quickly can leave you short on cash. Hiring staff or increasing stock means spending before earning.
• Unexpected Costs – A tax bill, equipment failure, or market shift can drain reserves fast if you’re not prepared.

This is where cash flow management comes in. If profit is your business’s fitness level, cash flow is its heartbeat. You need to make sure it stays strong and healthy.

Managing Cash Reserves: How Much is Enough?

How much cash should you keep in reserve?

The answer depends on your business type, industry, and risk appetite, but a general rule of thumb is three to six months’ worth of operating expenses.

Here’s a simple way to calculate it:

1. Total your monthly expenses (rent, payroll, supplier costs, tax obligations).
2. Multiply by 3 to 6 months – this is your ideal cash reserve.
3. Adjust for seasonality – if your business has peak and slow periods, account for them.

Holding cash reserves gives you breathing space. It allows you to make smart decisions instead of desperate or rushed ones.

Liquidity: Keeping Your Cash Flowing

Liquidity is how easily you can access cash when needed. It’s not just about having reserves but making sure your money isn’t tied up where you can’t reach it. E.g. In a fixed term savings account.

Ways to Improve Liquidity:

• Invoice Faster – Shorten payment terms. If clients pay in 30 days, can you bring it down to 15?
• Encourage Early Payments – Offer small discounts for prompt or upfront payments.
• Use a Business Credit Line – Having access to funds (even if you don’t use them) provides a safety net. E.g. A bank overdraft or revolving credit facility.
• Review Payment Terms – Are you paying suppliers too quickly? Negotiating longer terms can help cash stay in your account longer.

Liquidity isn’t just about avoiding financial stress, it’s about being ready for opportunities when they come, and having enough funds available to take advantage of them.

Common Cash Flow Pitfalls to Avoid

Even businesses that think they have their cash flow under control can make costly mistakes. Here are the biggest traps:

1. Relying Too Heavily on One Client

If one customer makes up more than 30% of your revenue, a late payment from them can put your whole business at risk.

2. Ignoring Cash Flow Forecasting

A forecast isn’t just a ‘nice to have, it’s your financial road map for the future. Know what’s coming in and going out for the next 6-12 months.

3. Confusing Profit with Cash

Just because your P&L statement looks good doesn’t mean your bank account does. Track both.

4. Overspending During Good Months

A flush bank account doesn’t mean free rein. Keep spending aligned with long-term plans. One of the most common mistakes to avoid, is not putting enough cash aside to pay tax liabilities as they fall due.

5. No Emergency Plan

What happens if sales drop suddenly? A contingency plan (and savings buffer) ensures you’re not caught off guard. Conducting scenario plans and sensitivity analyses can help model what various emergencies might look like, so you are prepared.

Practical Steps to Strengthen Your Cash Flow Today

Let’s make this actionable. Here are five things you can do right now:

1. Review Your Cash Flow Statement – Do you know exactly what’s coming in and going out over the next three months?
2. Chase Outstanding Invoices – Don’t be afraid to follow up. The sooner you get paid, the better.
3. Assess Your Reserves – Do you have at least three months’ worth of expenses saved?
4. Cut Unnecessary Costs – Review subscriptions, renegotiate contracts, and eliminate waste.
5. Talk to an Expert – Sometimes, an outside perspective can spot risks and opportunities you might miss.

A Better Home for Your Business Finances

Managing cash reserves and liquidity isn’t about luck; it’s about planning, skill, and discipline.

A business that controls its cash flow stays resilient, grows strategically, sustainably, and weathers the ups and downs that the economy throws its way.

If this all feels like a lot to juggle, you’re not alone. At RedBrick, we help businesses like yours take control of their finances, so you can focus on what you do best.

For a better home for your business finances, email hello@redbrickaccounting.com.