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Outsourced Accounting,
VAT & Customs Duty
You may be familiar with the age old saying “Cash Is King”. But when running a busy business, it can be all too easy to take your eye off the ball and not collect enough cash to meet outgoings.
Even profitable companies can struggle with cash flow problems if activities aren’t run efficiently. Without enough cash on hand, you risk falling behind with creditors. This can lead to bigger problems such as late fees, penalties, unable to pay your employees and damage your credit score. It can also have a negative impact on future contract terms with your suppliers.
What is cash flow?
Simply, cash keeps your business running. Cash flow is the net amount of cash that is going in and out of a company. Positive cash flow essentially means that your business has enough cash to pay its bills on time.
6 ways to improve cash flow
There’s no magic wand for creating positive cash flow, but here are six ways you can use to improve cash flow in your business:
1. Negotiate better terms with your vendors
If you are a good customer for your supplier, ask if there are any discounts available or if you can get longer credit terms. Then consequently your cash flow will improve by reducing the amount you pay and the longer you need to pay it.
2. Offer discounts for early payment
Everyone loves a discount, and by offering an incentive to pay in advance then you are in a win/win situation. Your client is happy, and your cash flow is boosted.
3. Send out invoices straight away
Having good processes around invoicing will help get cash flowing into your business. Make sure they are easy to read with all the information and instructions the customer needs. Make it as easy as possible for your clients to pay promptly. If you charge late fees, make this clear and follow through if clients don’t pay within your payment terms.
4. Reduce expenses
It sounds simple, but it’s very common to overlook lots of small costs that creep into businesses. For example, are you using all the licences for all the software packages you are paying for or is there software you’re not using? Have you removed the accounts/licences for employees that have left the business? Are you paying for storage (virtual or physical) for out-of-date archives and files that are no longer needed? Do you have any contracts up for renewal soon? Whether it’s insurances, utilities, phone packages etc, shop around for the best price for what you need BEFORE automatically rolling over your contract for another fixed term. Streamlining and removing these expenses that don’t serve you anymore add up.
5. Have a clear out
Take an inventory check. It’s easy to accumulate excess stock of items you order frequently hidden away in the back of a cupboard. Or you may have old equipment or office furniture that it no longer needed. How many photocopiers do you really need these days? You can sell off the excess stock and equipment, and only order what you need going forward, improving your cashflow.
6. Use technology to manage your cash flow
Use the apps for your accountancy software such as Xero or QuickBooks to have a clear and updated view of your cashflow and track your expenses. Having a clear view of your cash flow can help you make better decisions.
Summary
Healthy cashflow is essential to the success and growth of all businesses. It’s vital that you plan ahead and try to understand seasonal income patterns. In months where outgoings are higher, for example, VAT / rent quarterly payments – forecasting is key to plan for these events.
Having a clear picture of your cash flow enables you to plan for the future. You can use your cash flow projections to determine when you’ll have enough cash to invest in new projects, purchase new machinery, or grow your business with new staff and expertise.
By checking and updating your cash flow regularly, and keep taking steps to improve it, you can ensure that your business has the cash it needs to thrive.
How can Haines Watts help?
At Haines Watts we can help with all areas of cash flow management, from advising on the best online accounting software to helping you understand a cash flow statement, cash flow forecast, tips on how to improve your cash position, financing cash flow and tackling cash flow problems. Get in touch with us today.
