How to stay on top of your business finances
There’s no better way to say it, cash really is king in the world of small businesses. Having little or no cash flow leaves your business vulnerable to collapse or debt. We’ve put together a small guide to help you improve your cash flow and secure your business.
Step one towards better cash flow is to sit down with your accountant and get an overview of your business finances. They can lay out a financial forecast so you can effectively plan your cash flow in the long term and adapt to situations along the way.
Planning ahead also means protecting yourself. Even with a long-term plan and a clear financial forecast, clients can let you down and leave you with little cash flow. Depending on your line of work, deposits can be a great idea to protect against non-payment. Alternatively, you can arrange staged payments so that your client will pay according to stages of a given project, for example a third after designing, then a third after manufacturing and the final third on delivery.
Check Your Invoicing
Don’t forget to check your own invoicing. Late payments are one of the most common problems for small businesses but make sure you aren’t the problem. Are you sending out the correct details to the right person and in the right currency? You need to make your invoice easy to understand and therefore easy to pay. This makes sure you are paid on time and avoids any cash flow gaps.
Consider accepting online payments to speed up payments. Online payments are often easier and encourage timely payments from your client. If this isn’t an option, look into taking payments via Direct Debit or standing order. Setting up something like a Direct Debit for a set number of goods or hours means you can easily predict your incomings and outgoings as well as guarantee on-time payment.
Consider a Loan
Loans can sound scary but they can be part of a necessary strategy to inject some cash into your business. Especially useful for new businesses, your accountant will be able to advise you on which loan to choose and how it is best used. Always plan for the long term when taking out a loan – what will you be using it for and will it help you further than the next few months? If you are going through a very busy period or your business is seasonal, then a loan could be just the help you need.
Look Around Your Space
Be honest with yourself – when was the last time you took inventory of your stock or equipment? Both could have well-needed cash wrapped up in them. Go through your old stock and see what is piling up or hard to sell. Consider selling off old stock in bulk and put the profit in savings as backup cash flow. Don’t forget old equipment either. Look around your office for old laptops and computers. These days they have to be updated regularly; selling the old tech both frees up space and extra cash.
As a small business, your cash flow relies on fast payments. Simply working on your relationships with clients and suppliers can help guarantee faster payments. Start with your suppliers. Reach out to them and negotiate an invoicing system that works best for the both of you. They might have discounts for early payments or for paying via either Direct Debit or standing order.
The same goes for your clients. Work out a payment schedule that works for both of you and reach out with a human voice rather than sticking to email. This will make them more likely to pay you quickly and to want to help you out if you need prompt payment.
These five simple suggestions can help you on your way to improving cash flow. At Howlader & Co we’re always happy to talk to our clients about which methods are likely to work best for them and how they should implement them into their long-term goals – any good accountant should be the same. Remember to weigh up the risks of loans and unreliable clients and always consider your own mistakes before your suppliers’ and consumers’!