What happens if… I am struggling to manage my cashflow?

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 cashflow effectively is important.

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

The success of your business and your ability to upscale, expand and develop relies heavily on whether or not you have your cashflow 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 cashflow 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:

  1. Understand the simple maths behind cashflow.
    If your outgoings far exceed your income, eventually the ‘pot’ will run out.
  1. Know your breakeven point.
    It’s important for any business to know at exactly which point they will begin to be profitable – keeping that point in mind you can then focus your efforts on managing your cashflow with a view to realising that goal.
  1. 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 forget about cashflow as a result.You should continue to manage your cashflow responsibly, whichever stage your business is at, to ensure you don’t jeopardise the good progress that you have made.
  1. Do you have rainy day reserves?
    You may have some money squirrelled away for a rainy day at home, but have you done the same for 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. If you have reserves, you eliminate the niggling concerns about how the slightest shortfall might impact upon your business and free up more time to focus on other important tasks.
  1. Spend sensibly.
    Regularly reviewing how you spend the money that’s coming into your business can be beneficial. 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 barter for goods and services or even trade yours for another in return?
    • Can you confidently say that every spend is essential for your business to operate?
  1. Pursue prompt payment.
    By pursuing prompt payment from your clients and customers, you can completely change your financial outlook. When entering into any new agreement, ensure you understand the customers payment terms, plan accordingly and always issue invoices promptly.Monitor your debtors carefully; a big bad debt could be disastrous, so make sure that you talk to them regularly, resolve disputes quickly and, if they are having difficulties, discuss options and 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.
  1. Review your own payment practices.
    Where you can, get the best deal possible when it comes to extending your payables. Assess which payables are flexible and which should be a priority – try to spread your liabilities out to ensure you don’t end up paying for everything all at once.
  1. Up in the clouds.
    Make use of the latest developments in technology and the accounting software that is available to you. Cloud accounting packages such as Xero, Sage and Kashflow can make keeping track of your finances much easier.
  1. 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, adapting as circumstances change.
  1. The numbers don’t lie.
    As we look ahead to the end of the current tax year, now is a great time to review your business forecasts and cash flow projections for the next. Judge whether they are realistic in the current climate, consider where certain costs could be trimmed back, whether there are opportunities to enter new markets and 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 and the start of a new tax year is the perfect time to tidy this up too.

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 cashflow 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, call us today on 01767 315010.