Top tips for managing your cash flow effectively so that your business can trade and grow.
There is a much-used phrase that ‘cash is king’. In today’s society, the use of cash is declining as consumers and businesses feel the benefits of fast and secure electronic payments. However, cashflow, the movement of funds in and out of your business, is undoubtedly king.
Without fast access to money, businesses can’t pay their bills or capitalise on opportunities to expand. Even a profitable business can fail if its supply of cash runs out.
Having cash available sounds like an easy concept. In practice, it can be complicated, and many small businesses fail because they do not receive the money that is owed by their customers before they have to pay suppliers.
The good news is that today many technology solutions help you to protect your cash, and there are some simple business practices that will help you to succeed.
Find a good accountant
As business owners, often our expertise is in running the business rather than managing the accounting process. Depending on the size of your business, you may hire a skilled employee to perform this role for you, or you may outsource your accounting to an accountancy firm.
A skilled professional should pay for themselves by saving you more money, while also taking a weight off of your shoulders. For example, numerous businesses have failed as a result of spending their VAT and corporation tax money so they have been unable to pay Governmental fees. An accountant will guide you on what to set aside each month for the future VAT and corporation tax.
It’s critical to keep an eye on what is in the business’ bank accounts, what monies are due and what money you owe to creditors. A cost-effective accounting package will make this easy for you, alongside the support you receive from an employee or an accountant.
Ask for recommendations within your business network to find a professional with a proven track record.
Keep your personal finances separate
It’s essential to have an accurate picture of how your business is performing. If you are running your personal expenses through the company without repaying them, then you are not only breaking accounting rules, you are also not creating an accurate picture of the business’ performance. This poor accounting method also makes it harder to pay yourself accurately.
Furthermore, tracking your own finances accurately will facilitate business cashflow. You never know when an issue or a significant opportunity will present itself. If you build an emergency reserve of cash, you will have the confidence to know that your business has protection in the event of an unexpected expense. Consider initially paying yourself a little less to build up some savings in the business.
Manage your business bills effectively
It is in your interests to negotiate longer payment terms with your suppliers, also known as creditors, than the terms that you offer your customers. This strategy will avoid a situation of negative cash flow. Electronic payment solutions allow you to make an immediate payment to your creditors that is close to the due date without incurring a penalty.
In some cases, more flexible payment terms may be more beneficial to your business than a lower service cost.
Consider a line of credit
There may be situations where businesses need immediate access to cash, and they do not have an emergency fund to cover this. In these situations, you can consider a flexible line of credit such as a cash advance or merchant funding from your payment solution provider, or your bank. Having a facility like this can bring peace of mind if you experience a temporary cash shortfall.
Having a secure and reliable electronic payment solution, such as a card machine or a payment gateway, is critical for any business. However, many providers make you wait days for your funds, which can put a strain on your cashflow. Instead, use a Faster Processing system such as UTP Group’s same day funding system which gets you your money fast; as quickly as within an hour.
Get your customers to pay
Wherever possible, ask your customers for a payment, or part-payment upfront using a card machine or an eCommerce Payment Gateway.
If that is not possible within your industry, then ensure you sign a contract with the client that commits them to pay specific amounts on particular dates. Find an invoicing solution that makes it very easy for them to pay you, and that chases payments automatically.
You could consider offering discounts for payments made in advance and for paying invoices quickly. For significant deals where you offer credit terms on the payment, you can insist on running a credit check on those clients first to minimise your risks.
Conclusion: cashflow is king
Cash flow can be the difference between a business having a long and successful performance, and at the other end of the spectrum, bankruptcy.
To protect your cash flow, make sure that you are receiving the money that your customers owe you before you are due to pay suppliers. Make it very easy for your customers to pay you by offering an eCommerce Payment Gateway for online payments and a card machine for in store payments. Critically, choose a payment solution provider who offers same day funding for the payments you collect.
Find a good accountant who will ensure that your accounts are compliant with tax rules and that you are keeping enough reserves for your corporation tax and VAT. Make sure you are protected for the unexpected by having an emergency savings account and a flexible credit facility. Always separate your personal finances from the business and manage your spending to a budget.
With these simple steps, your cash flow will become a tool to grow your business.