Cashflow management

A positive cashflow and good cashflow management are the bloodline of a business. It is especially essential in the current economic climate to ensure that as a business owner, you have got your eye on the proverbial ball, whether you are doing this yourself or have outsourced it.

Here are some points to consider:

  • Create a cashflow forecast.

A cashflow forecast is a prediction of how much money you expect to receive minus the amount of costs you expect to incur.

For a simple cashflow forecast, start with your current expenditure and income, review future income and expenditure and input these figures on a spreadsheet to get the difference between money in and money out. If the money coming in is more than the money going out, this is a good start.

A cashflow forecast is useful to plan expenses, strategize for your business – for example accessing plans to grow the business, planning and implementing a marketing strategy. It also of course helps with the management of cash.

Get your accountant’s help for an In-depth cashflow forecast.

  • Analyse your cashflow regularly.

You have done the cashflow forecast, don’t stop there, review the income that is coming in and when is it coming as well as payments due and when they are due to be paid out on an ongoing basis, then adjust your cashflow forecast accordingly. Review what’s working and what is not, what expenses can be reduced or cut out altogether and how the business can get more money in.

  • Implement an efficient invoice system.

As well as having an efficient invoice system, make sure you have an efficient invoicing process in place to ensure invoices are raised when they should be raised and reminders for payment are sent accordingly.

Automate as much as possible. There are various software options to help with this.

  • Negotiate better payment terms with your suppliers.

Check with your main suppliers on whether the current payment terms could be improved. If you don’t ask, you don’t get.

  • Make It easy for your clients to pay you.

Automate your payment system and make it easy for your clients to pay you; offer more than one payment option.

Implement a robust process to chase and review overdue payments.

  • Invoice financing or discounting

Invoice financing is where an invoice financing company takes over your unpaid invoices and pays you a percentage of the value of your invoices, this includes them taking over the payment collection for the unpaid invoices. 

Invoice discounting is when a business uses its unpaid invoices as security for debt. The business will remain responsible for the collection of the unpaid invoices.

This can be expensive but useful when cash is tight.

  • Utilise all available concessions like cash accounting for VAT and gross status for construction clients.

Businesses with turnover of £1.35M or less can use cash accounting for VAT. This means that you only pay VAT when you get paid. This can be a massive boast to your cashflow as you only pay VAT when you are paid bearing in mind that VAT is 20% of the value of what you invoice for standard rated supplies.

For construction businesses, consider applying for the gross status, this means that when you are working on a project, you will not have CIS which is normally 20% or 30% of the value of your invoice for labour withheld by your clients.

  • Build up an emergency fund for your business.

Its sensible to set aside funds to cover unexpected business expenses.

This can also include easy to access cash.

Need help with your cashflow – get in touch here.