Cashflow management: Organise money like a night out

The same situation applies when money runs out in business – your options are limited and you may just have to call it quits.

The solution to both situations is quite simple and the same; implement a realistic forward cash planning process. This way you don’t need to shut the doors to your business or be the first one to go home on Saturday night.

Keep the money flowing

A good starting point when trying to plan for the year ahead is to put together a week-by-week cash flow plan, which includes a realistic assessment of what income will be coming in, and when, as well as all major outgoings. You should include things like:

  • Tax Payments;
  • Technology;
  • Utilities;
  • Travel;
  • Staff and office premises;
  • Stock and raw materials;
  • Insurance; and
  • Professional fees and subscriptions.
While putting this plan together, it is important to be realistic but you don’t need to assume the worst-case scenario, since assumptions like that may affect the process of starting the business itself.

Leave out any sales revenues or contracts that are uncertain, as they don’t fall under the ‘realistic’ category. Cash flow plans exist so that you have as much knowledge as possible on whether or not your business can actually make it, even if everything doesn’t go your way.

Keep in mind that follow-ups, or ‘reforecasts’ are extremely important, even as much as the first draft. The plan needs to be a live document that reflects the latest information you have about the business and allows you to run it in an informed way – so aim to make amendments and reviews as often as possible, for example each quarter. This way you will be able to compare the stages of the business, the latest trends and allow for impacts such as: better or worse sales than expected, new contracts, changes in staff or supplier pricing.

Cash is King

Not all businesses take cash, and your business may be one of those that don’t, so you have to come up with a way to get paid by customers as quickly as possible – collecting cash is crucial for a small or new business. You could ask customers to pay via direct debit or you may want to offer a discounted price for those that pay earlier than others. The key is to ensure regular cash flow and you’ll also save precious time, as you won’t have to deal with chasing payments.

Customer service, quality and ‘delivering on the promise’ are of paramount importance for any business – it’s what keeps your customers, happy, loyal and coming back for more – and if you’re lucky, recommending you to others. So, it’s a balance but without compromising on the customer experience too much, from a cash perspective it’s sensible to keep your fixed overhead costs as low and lean as possible – especially when the business is young. This will keep more cash free for investment and growth, for emergencies or general periods of difficulty, and will give you more flexibility to respond to changing customer demands or competitor action.

Every business has its tough times

In some ways a business is like a living creature, existing in a changing environment and so there are dozens of internal and external things that can affect its fortunes and its cash flow. Tough times are likely to occur at some point, even for a growing business. At such times, it is sensible that you cut out any discretionary costs and only allow money to be spent on vital things that serve to keep the business running and delivering for its customers. Cut costs where possible and try to find cheaper alternatives that will give the similar results.

A good track record, credibility and a solid plan are invaluable as they are conversation starters with your bank – especially when you are having financial difficulties. A good relationship with your bank could get you some much needed support and help, for example in the form of a short-term overdraft or working capital loan. Other options to consider are a cash injection from invoice or asset finance, where funds are secured against your customer invoices or business assets. You could even consider peer-to-peer lending, where you receive funds from several small investors in exchange for interest or a share in your business, via an online platform. In all cases however, a realistic plan showing a path to success is essential.

You can’t hide from the taxman

Forgetting to pay the taxman is serious and can have major consequences. A lot of people struggle with payments, so don’t feel like you are alone – be smart and speak up about whatever issues you are having by contacting HMRC and explaining your cash-flow issues.

Acting early increases your chances for a ‘time-to-pay’ arrangement, where you will be able to pay what you owe in instalments over an agreed period of time. This means that the HMRC won’t show up at your doorstep, and you won’t have to pay any interest or penalties on overdue tax.

John Hoskin is a director of CleverAccounts.com, an online accountancy firm that seeks to simplify the task of business accountancy. Paying a fixed monthly fee, small businesses, limited companies, sole traders, freelancers and contractors have access to accountancy, business-set up and tax planning services, simple-to-use online bookkeeping, a 24/7 view of their figures and on-going tax advice.

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