Your business needs cash to thrive, there is no way around this. So what can you do to make sure you don’t suffer the same fate of failure that four out of ten small businesses experience in the UK?
Invoice quickly and align payments with money you have, not money you are expecting
The truth is that no matter how careful you are, a late payment now and then is inevitable. Invoicing quickly and agreeing on clear terms will help prevent late payments, but still, things don’t always go to plan.
To keep your cash flow healthy, continue to make payments with money that you already have, not cash that you are expecting from customers. This will put your business in a better position. Risking relationships by issuing late payments will not bode well for your business’ standing. By only using resources that are immediately available to you, you will reduce your chances of a cash flow nightmare.
Establish strong relationships with your creditors
Creating strong relationships with your creditors will allow you to deal with temporary cash flow issues better. Paying on time regularly will allow your case to fall on kinder ears when the situation arises. Always speak honestly about your situation, and provide a realistic timeline for payment. Trying to please your creditors momentarily by lying about expectations will only decrease trust as your working relationship continues. Creditors are people too, and have at some point been in your shoes.
Never spend money saved for taxes and VAT
A crucial, yet sometimes forgotten fact. NEVER spend money saved for taxes and VAT. VAT is paid every three months and corporation tax yearly. If you do not have the funds available on time this can result in serious fines, or late penalties. These are expenses that can be easily avoided with careful planning and spending.
Hiring outside help will save you time, and depending on the service, allow you to stay on top of your spending, taxes, and any other outgoings with less pressure on you. Whether you invest in a payroll service, or look into cloud accounting software to help run your business, it is money worth spending. You want to succeed, and managing certain aspects of your business efficiently is vital to achieving this. If you do not have enough time to do it yourself, technology is here to help you, not hinder you. Xero and QuickBooks Online are examples of great cloud accounting software that can help you manage your finances. There are also other options when looking to outsource, so invest some time to find the services that will best fit your business needs.
Managing your money
The best way to prevent any unwelcome surprises is to maintain a regular cash flow forecast. Take some time out of your day to make sure that all expenses are accounted for, as well as the timing and amount of expected income, so that you can keep your business on track.
Analysing your cash flow forecast can help you notice many things about your business’ outgoings, for example; you may be paying your creditors too early, and not making optimal use of your cash to facilitate your business’ growth. It’s also a good way to keep a careful eye on your income and track that debtors are paying you on time.
By Greg Carter, founder and CRO, Growth Street