Running a small business? There are several steps you can take to improve your cashflow. From understanding and controlling your expenses to increasing profits, here’s some tips on how to manage the cashflow of your small business effectively. Thank us later.
1. Understand your overheads
Your operating expenses such as rent, staff and other running costs typically need to be paid monthly. Look at your business profit & loss account or create a list to work out the amount you need to reach in order to pay your overheads ( this is commonly referred to as working capital). Reviewing your overheads regularely will enable you to identify areas where money can be saved and ultimately help your business achieve a healthier bank balance.
2. Check profit margins
The margin on a sale/project is created by calculating income minus direct costs. Understand if there are any areas where costs can be reduced to help increase the profit and give you more cash in the bank. One way of maintaining your profit margin is by reviewing supplier prices regularly.
3. Accept credit/debit card payment
Regardless of the nature of your business, you could encourage customers to pay invoices by card. There are several ways of setting this up quickly and securely. Terminals and technology are provided by companies such as PayPal, Izettle or Stripe which can also be linked with your existing accounting software such as Xero.
4. Create a cash projection
Cash balances have highs and lows. By creating accurate projections you are able to build insights, forecast and prepare your business for any tricky situation. You may forecast a shortfall in cash and require a short-term business loan or overdraft.
5. Chase outstanding invoices
Slow paying customers is a common problem for every business, and surprisingly larger businesses tend to have slower payment cycles. Consider printing payment terms on your invoices e.g ‘Payment due in 30-days’ and don’t be afraid to start chasing them once they are overdue. If you have an internal accountant or bookkeeper allow them to help you stay on top of your invoicing process. Of course, don’t forget to invoice and pay on time yourself.
There are several financing options available to small businesses. If you are stuck for ideas, consider speaking to an accountant or schedule a meeting with your bank manage to see which options are available to you.
7. Create multiple revenue streams
If your primary business is seasonal, you could look at ways to boost your cashflow by developing new income streams. Consider subscription-based services or re-packaging services to appeal to different sets of customers. Try to avoid a one package service unless you are totally confident of its potential.
8. Avoid holding large quantities of stock
If you buy and sell products ensure you keep a sensible level of stock. Although it may be tempting to pick up a ‘good deal’ it does tie up cash and depending on the speed you sell your stock at, it could be a while before you get a return on your investment.
Remember, no business is immune from the challenge of managing cashflow. Understanding your cash balance and what affects it is essential. Working with an accountant can help you develop robust cash projections, give you the insights you need and enable you to plan and be prepared.
Do you have a question relating to small business cashflow or something else? Visit the Accountants Forum below and tap into our community of qualified UK accountants, tax advisors, bookkeepers and other small business owners like you.