How to actually figure out your cash flow: what you can afford, when, and why it matters
Cash flow isn’t just about whether you’ve got money in the bank. It’s about what that money needs to do before it’s really yours to spend.
And figuring out what you can actually afford? That’s where most small product-based businesses fall flat, not because they’re lazy or reckless, but because no one ever really explained how to run the money side properly. You can have great sales and still feel skint. You can be busy and still be stressed about paying the next VAT bill. And you can work 60-hour weeks and still feel like you're robbing Peter to pay Paul.
If you're still relying on a “check the bank account and guess” method when making stock purchases, paying yourself, or planning your next move, this is for you.
First up: What even is available cash?
Your business bank account might say you've got £10,000 in there, but that’s not the same as having £10,000 to spend. That money’s already spoken for, by tax, VAT, next month’s rent, restocking, or things you ordered two weeks ago that still haven’t been invoiced.
Here’s a quick way to figure out your true available cash:
Start with what’s in the bank.
Minus any bills or standing orders due in the next 30–60 days.
Minus a realistic tax/VAT provision. (Speak to your accountant if unsure, but 20% for VAT is a decent ballpark. For Tax you should know if you’re in profit and therefore liable to pay tax - put 25% away for this, but of course this does depend on your situation)
Minus any amount you must keep aside to reorder your core stock.
What you're left with is your discretionary cash, the money you can actually choose how to use.
Don’t let your stock tie up all your money
One of the most common causes of cash flow problems is overspending on stock. It’s so easy to over order, maybe you’re trying to get better prices, or you're panicking because something sold well once and you want to replicate it. But if you’ve got money tied up in stock that’s just sitting there, it’s literally dead cash.
And worse, stock that doesn’t move gets dusty, outdated, takes up space (even in your spare room), and can lead to even more cash stress when it doesn’t sell and you start discounting just to shift it.
If your stock isn’t turning fast enough, you have a problem.
If you're sitting on 12 months' worth of stock, you're limiting your ability to develop new products or jump on opportunities.
If your run rate shows things are selling slowly, stop reordering and start clearing.
Enter - your open to buy.
Open to buy: Your best mate for knowing what you can afford
Open to Buy (OTB) is your framework for knowing how much stock you can afford to buy in a given period without overstretching. It’s something that as a buyer we worked to ALL the time (if you wanted more you went begging and were always told no…be this strict with yourself).
It’s based on:
What you want to sell (i.e. your revenue target)
What you’ve already got in stock
Your stock turnover/run rate (more on run rate later)
And your gross margin
Let’s say you want to turn over £15,000 next month and your average margin is 60%. That means your cost of goods is around £6,000. If you already have £4,000 worth of saleable stock, your OTB is only £2,000. Not £5,000. Not £10,000. £2,000.
OTB keeps you grounded in the numbers, not in guesswork or gut feelings. It stops you overbuying and then firefighting.
It uses only your profit from the cost of goods from each sale to ‘put back into’ the business whilst also acknowledging the stock you have sat there.
Run rates and stock turnover: How fast are you selling?
Here’s a quick calculation that will change how you see your shelves:
Run Rate = number of units sold per week
Weeks Cover = stock units ÷ weekly run rate
So if you’ve got 300 units in stock and you sell 25/week, that’s 12 weeks of cover.
If your goal is to turn stock every 3–6 months and you’re sitting on 10–12 months’ worth, you’ve overbought. And that’s where markdowns creep in, leading to profit erosion and (yep, you guessed it) cash flow issues.
However, if it’s been sat there a stupid amount of time you do what you can to get rid of it.
What % of cash should you use on stock?
There’s no perfect number, but here’s a good rule of thumb:
30–50% of your available cash (after VAT/tax/expenses) can go into stock, if you’re turning fast and have healthy margins.
Stick closer to 30% if:
Your margins are under 50%
You’re in a seasonal dip
Your sales are inconsistent
ALWAYS leave cash in the business to cover core costs because those won’t wait for stock to sell, they’ll demand to be paid regardless.
Stop relying on markdown madness
Discounts have their place, but unplanned, heavy markdowns eat away at your margins and mask cash flow issues.
Just because stock is selling doesn’t mean your business is healthy, if you’re not making profit, you’re just moving money around.
Use promotions strategically:
Bundle instead of slash
Plan sales around events…always
Offer perks like free shipping or gifts, not just ££ off
How much can you afford to pay yourself?
The million dollar question!
This one’s hard but important. You can only pay yourself what the business can afford. Not what you want, not what you used to take, not what your sales make you feel like you deserve.
Your pay should come after:
Cost of goods
Operating costs
Tax/VAT set aside
Stock replenishment
And you should be taking a consistent salary, not random withdrawals. If you’re not making enough profit to pay yourself, and your business sees decent sales, that might not be a cash flow problem, it could be a business model issue.
VAT, Tax and that dreaded threshold
If you’re nearing the £90k turnover VAT threshold, start prepping now. Hitting it unprepared is one of the fastest ways to wreck cash flow.
Know your numbers: you can be worse off going just over the threshold if you don’t plan
Speak to your accountant: factor VAT into pricing before you’re registered
Open a separate VAT pot and treat it like it’s not your money, because it isn’t
And the same goes for income tax. If you’re not putting money aside each month, your January (and July!) will be hell.
Use a P&L sheet – even if you hate numbers
If you want to avoid cash flow headaches, you need a basic monthly profit and loss sheet. Even if you “feel” like you’ve got a handle on things.
Track:
Sales
Cost of goods
Overheads
Profit
Drawings
What’s left in the bank
Once you’ve got this, you can actually plan for things, VAT, new launches, quiet periods, instead of reacting to whatever’s happening in the moment.
Finally, every pound has a job
Healthy cash flow isn’t about selling more. It’s about managing the money you already have more effectively. Every pound needs a job, stock, tax, expenses, wages, growth.
If you don’t give it a job, it’ll disappear. And you’ll wonder why, when sales are great, you still feel broke.
If this all resonates with you then come on it’s time to tackle it head on. Ditch the panic, embrace your numbers, and build a business that actually supports you, not the other way round.