​Cashflow Concerns? Here's How to Fix Them

Did you know an out-of-control cashflow puts you in a particularly vulnerable position? Apparently businesses that can't manage cashflow effectively are the most likely to go under. It doesn't matter how innovative the product or service, or how keen the market is to consume it, cashflow can kill a business in record time. And in hard times, with bank loans hard to get, a cash-poor company can easily be pushed over the edge. Here's how to stay away from the brink and future-proof your business.

Maintaining a healthy cashflow

Your business won't last long when cash outflow exceeds inflow, especially when you're at the startup stage. Cash flow is your number one priority. Here are some tips to help you stay on the right path.

Know where you stand – Setting a budget

Estimate cash inflows, taking into account your typical sales cycle, sales terms, any discounts, your customers, sector delinquency rates and anything else that could impede cashflow. Then do the same with the factors that might affect the way cash comes into the business, things like purchasing, supplies and materials, salaries and everyday expenses. Now you know roughly where you stand, in a position of power.

Revisit the numbers regularly to stay on track

Go over your budget regularly, once a month at least, so it's always current and relevant. Then you won't get caught out. Compare your actual cash flow against the budget. If you get less cash in than you expected, find out why. If cash outflow is more than expected, get to the bottom of the cause. It'll put you in good stead on an ongoing basis, always aware of your situation. Once you know what's going wrong, you can fix it.

Be prepared just in case things go wrong

Unforeseen circumstances mean even the best-run system can crash and burn. Make a contingency plan with an extra source of cash set up in advance, to tap into if you need it, to keep things running until your cashflow settles down again. It might be a line of credit, personal cash or borrowing from family. Either way you need it in place before anything bad happens, since it's a lot more difficult to borrow against an ailing business. And make friends with your bank. You never know when you might need them.

Buy when you actually have the money

You could buy now in the hope you'll soon have the cash to cover it, risking getting into trouble. Or wait until you have the cash before buying, which helps maintain a healthy cashflow.

Set aside tax up front

You know how much tax you have to pay. Put it aside as you make sales so it's there when the time comes to pay. Open a separate account to stash it in, so you can't inadvertently spend it and dig yourself into a hole.

Delegate Payroll

The British tax system is notoriously complicated, which makes a good payroll service invaluable. Rather than worry about getting everything right yourself, let a professional do it.

Stay on top of invoicing and bill payment

You could give credit to your customers, with regular payments instead of one large one in full. But it's easiest to maintain cashflow when you bill immediately for the entire amount. If you have to offer credit, ask for a down payment to keep the cash flowing.

Whatever payment terms you provide, track your invoices and send reminders. And take advantage of electronic invoicing online rather than using the post. To ensure fast payment, you could even incentivise customers with a reduction in their bill if they pay early, for example 10% off when they pay within 7 days. If a payment is taking its time, send a reminder 7 days before it goes over your deadline.

A sound cash-flow management strategy also means paying on the button yourself. Pay your bills straight away and you will find it easier to track exactly where you are in real time. You might also benefit from early bird payment discounts.

What if you're having cashflow issues? You can ease them by paying the most urgent and important bills - those that let you continue in business – first. Delay those that are less important, things like utilities and insurance, and pay leave those where you've got some flexibility last.

Set up a simple credit control system

Set up a simple credit control system that swings into action one day after a payment goes overdue. It can be as simple and hands-on as nominating a staff member to give debtor a courtesy call to chase late payments or as hands-off as taking on a professional debt collection company or freelancer to do it for you.

To find out more about how Aben Bookkeeping can help your business call 01273 661913 or e-mail karen@abenbookkeeping.co.uk