Our handy guide to help you maximise cash flow and avoid damaging negative impacts on your business from poor financial planning
To smooth out the peaks and troughs of your business’ cash flow you need to manage it smartly and set yourself on the right track by following our top tactics.
Being the boss of credit control is the first step to hassle-free cash flow (read more on this in our recent blog Manage Credit Control.) And, once you have a professional system in place the next step is to consider some examples of best practice to help you action improvements across your business.
If you’ve read this far, and are still asking yourself, ‘is this important for me and my business?’ then it’s probably a good idea to start by considering the multiple downsides of poor cash flow.
The impact of poor cash flow on your business
Consider this – if you’re paying money out more often than you’re bringing it in then it’s hard to make a success of your business. Worse case scenario: you go out of business. So, it’s vital you have processes in place to ensure cash flow runs smoothly and any debt is kept within safe limits.
And it’s not just your business that can be hurt. Lack of financial planning can place great stress on your family and your relationships if you are constantly bringing money troubles home, or even having to forgo your salary for a while if company payroll is affected.
You won’t enjoy running your business, and staff morale is bound to suffer if the everyday climate is one of financial worries, constantly chasing late payments, and fighting off unpaid suppliers.
You could miss out on new opportunities if you can’t afford to invest in equipment or meet up-front outlays. And you may be forced to take out bank loans – incurring interest and bank charges – or dip in to savings to ease a cash flow crisis.
Kim Redwood-Lee, Managing Director of Oscar Fairchild and an AAT bookkeeper with over 26 years experience says, “Successful businesses make sure they’re always on the front foot when it comes to financial management. If you’re organised and methodical in your approach to cash flow then you can dodge the nasty suprises that appear along the way and run your business positively. That’s good for you, your family and the team you employ”.
Keep your cash flow working for you
Follow these four fundamentals when it comes to cash flow:
- Timely invoicing
- Clarity in invoice terms and details
- Good communication
- Payment follow-ups
The best way to boost your cash flow is to get payments in quickly; and the best way to do that is by invoicing promptly, as soon as possible after a sale or a service is provided. That way you’re not left hanging with expenses waiting to be covered.
Invoice in a timely manner, and do it consistently. It’s good for you, and it’s useful for regular customers too as they’ll know where they stand.
They’ll pay you quicker if it’s easy to do so, which means you need to be 100 per cent accurate and clear in the information on your invoices: bank details, company addresses, job specifics.
If you turn to a professional bookkeeper or accountant such as Oscar Fairchild to help you with your cash flow they will get your invoice template right, and may provide an online payment option for clients through their accounting software.
They can help you fix appropriate payment terms, and vary them from 30 days down to 21 or 10 days by judging what is appropriate for your clients. And advise if down payments or deposits are industry-appropriate.
All of the above can be helped by good communication. Get your payment conditions agreed in a contract, and don’t give clients any surprises by keeping them up to date with any changes to billing patterns.
If you really have to, be firm and consistent with payment follow-ups. You need to keep the money coming in, so you need a plan to chase down non-payers and get debts off the books as soon as possible.
Kim Redwood-Lee’s top tip:
Cash flow analysis by a smart accountant gives you regular insight.
And identifies cash flow problems in plenty of time to take any action necessary.
You can’t beat good financial management – it’s essential for the long-term health of your business. If you’re no good at it, then turn to a professional accountant or bookkeeper.
Look at your own financing options to keep your house in order
Depending on the business you work in, payment discounts may be something for you to consider – for prompt or advance payments – as well as interest applied to late payments, or any penalty charges.
Other financing options could reinforce your cash flow, such as an invoice financing service, or a bank credit facility to ease any short-term problems. And always consider spreading large outgoings – like equipment purchases or company vehicles – through staggered payments or leases.
The key is to get on top of your cash flow and plan for success – not letting worries build up – which is why working with a bookkeeping and accountancy partner like Oscar Fairchild makes perfect sense for your growing business.
About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an Association of Accounting Technicians (AAT) qualified accountancy & bookkeeping practice with offices in The City of London and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses across London, Essex and Hertfordshire.