Is your cash flow keeping you up at night?
In Xero's Money Matters report in 2023, 72% of small business owners admitted experiencing cash flow issues in the previous 12 months. So you're not alone if cash flow is playing on your mind.
But there's a reason that the phrase 'cash is king' is so popular - managing your cash flow really is essential for the survival and growth of a small or medium sized business (SME). You can be making lots of profit 'on paper', but if you've got no money in the bank, your business will likely be in trouble.
With this in mind, this blog focuses on a handful of tips that all SME owners can use to improve their cash flow:
Invoice in advance: if you're delivering a project over a period of time, you should absolutely invoice part of your fees up-front so that you are not covering the costs of the project (such as salary costs) before you get any income in.
Automate your invoicing and debt chasing: use the functionality that exists in your accounting software, such as reminders when invoices are approaching their due date (no need to wait until they are a week overdue - you want that money in your bank account ASAP). Make sure you are looking at the list of invoices due from your clients regularly - that's at least once a month, if not once a week.
Manage your payables: if you are paying all of your suppliers immediately because you don't have the headspace to remember to pay them later, then you need a better system! Again, make sure you are using your accounting software to it's full potential.
Set aside money for tax bills: those quarterly VAT bills and annual Corporation Tax payments can make life stressful if you don't have a process for setting money aside to cover them. I would always recommend a regular transfer into a separate account or 'pot' for these bills, based on your sales and profit. Don't forget to think about how you're going to pay your self-assessment bills and whether that's coming out of your business bank account.
Forecast your cash flow: using your historical data on the money into and out of your business, along with some basic assumptions on sales and expenses, you can set up a spreadsheet of what you expect to happen over the next few months. Don't just set it up and forget about it though, you need to compare your actual bank balance against it, to see how accurate the forecast is, and then amend it so you get more accurate in the future.
Have you got all of those in place? Great work if you do!
And if you don't, but you'd like to feel more in control of your business finances, then feel free to get in touch via my website or on LinkedIn. I'm happy to have a no obligation chat to see if I can help.
Keep an eye out for other tips to help you run your SME in a profitable and sustainable way.
My mission is to make finance simple and understandable for business owners.
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