Whether you’re a small business just starting out, or a large multi-national corporation that has been established for many years, knowing how to manage your cash flow effectively is important.

That being said, the consequences of ineffective cash flow management can be far more disastrous for those small and medium sized enterprises (SMEs), than for a big business.

The success and longevity of your business and your ability to upscale, expand and develop relies heavily on whether or not you have your cash flow under control.

Whilst for some this may come easily; we know that there are many business owners who find it a challenge to stay on top of what comes in and what goes out. When this is the case, you may find that your negotiating and buying power, as well as your ability to pay the bills and meet any short-term liabilities and potentially even the life-span of your business, are impacted.

Put simply, your cash flow is critical to the overall ‘health’ of your business and should be treated as such.

With so much at stake, here we consider some of the ways you can take back control of your cash and better manage your money:

Understand the simple maths behind cash flow.
Understanding the simple maths behind your cash flow, is the first step towards managing it better. If your outgoings far exceed your income, eventually the ‘pot’ will run out.

Know your breakeven point.
It’s important for any business to know at exactly which point they will begin to be profitable – with that in mind you can focus your efforts on realising that goal.

Profitability does not equal perfection.
Your business may be profitable, which of course you should be proud of, but it’s essential that you don’t pay all your time and attention to this fact and neglect to effectively manage your cash flow as a result. You should continue to do so responsibly, to ensure that you do not jeopardise the good progress that you have made.

Do you have rainy day reserves?
You may have some money squirrelled away for a rainy day at home, but can you say the same when it comes to your business?

The nature of life is that it is unpredictable; you never know what may be just around the corner and there are bound to be times when cash is a little tighter than others. In having reasonable reserves, you instantly eliminate any niggling concerns about how even the slightest shortfall might impact upon your business. In essence, you can work more and worry less!

Spend sensibly.
Regularly reviewing how you spend the money that’s coming into your business can be beneficial, particularly when it comes to identifying expenditure that may not be wholly necessary. Consider the following:

Is there anywhere you can make significant savings?

Could you take advantage of certain business transactions and identify instances where you may be able to secure a better price point for goods and services or even trade your own product/service for another in return?

Can you confidently say that every spend is essential for your business to operate?

Pursue prompt payment.
By pursuing prompt payment from your clients and customers, you can completely flip your financial outlook. When entering into any new agreement, ensure you understand the customers payment terms, plan accordingly for those and always issue invoices promptly. Monitor your debtors carefully; a big bad debt could be disastrous if left unaddressed, so make sure that you communicate regularly, resolve disputes quickly and, if they are having difficulties, discuss potential solutions at an early stage.

With the plethora of easy-to-use applications, software packages and online platforms available to business-owners today, getting paid faster has never been easier. Simply, prompt payment means you can start to utilise the money within your business sooner.

Review your own payment practices.
Where you can, get the best deal possible when it comes to extending your payables. Assess which of your payables are flexible and which are not so – try to spread your liabilities out to ensure that there isn’t one point in time where you’re under pressure to make your money go further than it realistically can!

Up in the clouds.
As we move ever closer to a ‘digital’ tax system in the UK, if you are not already, we would encourage you to consider the benefits of embracing technology and accounting software. Cloud accounting packages such as Xero, Sage™ and KashFlow, all platforms that we support, can make keeping track of your finances easier.

Prepare a plan.
If you can, plan. Be clear on how you are going to keep track of what comes in and goes out, know which expenses are coming up and how you’re going to cover them and, if necessary, decide how you will allocate your money throughout the year, always factoring in some ‘breathing room’ should your circumstances change.

The numbers don’t lie.
Whilst the months leading up to the end of a tax-year are often promoted as the perfect time to review your cash flow, truth be told there isn’t really a wrong time.

Your cash flow should be under regular review; judge whether your projections are realistic in the current climate, consider where costs could be trimmed back, whether there are opportunities to enter new markets and, ultimately, decide if your cash flow is behaving as you would expect.

In addition, consider whether you are producing management accounts regularly and, if not, what financial data you can easily extract from your accounting system that would facilitate improved monitoring of the business. To extract meaningful figures, it’s imperative that your accounting records are kept up to date; where this isn’t the case, now could be time to take steps to tidy them up.

Here at George Hay we work with businesses of all sizes, across a range of industry sectors. We understand the challenges that businesses face on a day-to-day basis and that is why we support our clients throughout the whole year and not just at year end.

We can help you to take control of your cash flow and drive your business forward. We will work diligently with you to put a realistic plan together that will cultivate confidence within your business and ultimately facilitate growth. We also support a range of online accounting and bookkeeping software packages meaning we can take care of your cloud accounting needs

To find out more about what we can do for you and your business, contact us today.