Small Business Cash Flow Advice

How To Manage Your Money

Losing control of cash flow is among the most common reasons why so many small businesses die young. It doesn't matter how great your idea is, or how strongly you want it to succeed. If you can't pay your bills the lights go out. Your business is a living thing, and your cash flow is the blood pumping through its veins.

Cash flow is simply a way of describing the money moving through your business, but it's not just a question of having more coming in than going out. If that gigantic payment you're counting on doesn't roll in on time, you'll quickly find yourself in the middle of a cash flow crisis. There will always be factors you can't control, but that's no excuse for not planning for them.  If you're continually bumping up against your overdraft limit or being chased for payments by suppliers, you may have a problem. Research has shown that fully 20% of failed businesses would still be alive and kicking today if they'd understood their cash flow properly - and showing a bank that you've managed your cash flow well could go a long way toward getting that loan or overdraft extension you need to stay above ground.

Limited Companies weather the cash flow storm differently from other small businesses, offering limits to owners' personal liability when a disaster strikes that would bankrupt a Sole Trader. It might not save the company itself, but at least you've got some protection to fall back on.

The way you fix a cash flow problem depends on how bad it is. If you're still profitable, you might just need to tighten up your credit control or reduce your costs a little. If the crisis is more severe you'll have to take more drastic steps to keep your business alive. Doing "just enough" and "just in time" might keep you going for the moment, but you'll be hopping from one near-miss to the next until you get to the heart of the problem.

If this stuff sounds scary to you, then you're already on the right track. Many of the problems that sink small businesses come about because the people running them weren't scared enough - or at least soon enough. Maybe they sleepwalked into the trap over being "turnover-led", instead of "profit-led". Maybe they thought a high sales volume automatically meant they were doing well. Cash flow can be a tricky puzzle, but RIFT Accounting is here to help you solve it. We can help you with:

  • Forecasting. Unless you forecast, you’re unlikely understand how much you need and when you need it. If you apply for a loan, a bank will request a detailed cash flow forecast before even considering your application.
  • Debtors. Understanding how much money you’re owed and how this is going to affect your cash flow.
  • Understanding your cash position. Using Clear Books together, we can clearly see how much you have in the bank, how much you owe and how much you are owed, making sure you’re in full control of your business.

Cash flow management is a tightrope walk over a lion cage. Call or email RIFT Accounting to set up the safety net you need.

Top Tips For Managing Your Cash Flow

Rift will keep a close eye on your cash flow budget to watch for potential cash shortages. We'll help you develop warning systems to identify where unexpected changes or delays could cause the business to run out of cash. As a head-start, this checklist should be second nature to you:

  • Invoice promptly and chase outstanding payments vigorously.
  • Consider charging interest and debt recovery compensation charges on late payments.
  • Be prepared to make short-term sacrifices when your cash flow position is dicey.
  • Minimise the amount of cash owed to you by restricting credit periods or offering incentives for early payment.
  • Cut unnecessary costs and shop around for competitive prices. Negotiate generous payment periods and short delivery lead-times.
  • Think about cash flow before committing to new expenditures or overheads.
  • Turn down orders you can't finance. Negotiate deposits or stage payments for large orders and long-term contracts.
  • Build relationships with financiers and suppliers so they'll extend extra credit when you need it.
  • Sell unneeded or unproductive assets and discontinue business lines that are bleeding you dry.
  • Take into account short-term fluctuations that don't show up on monthly or weekly budgets.


Do:

  • Focus on receiving payment for sales.
  • Keep cash flow budgets up-to-date.
  • Avoid unnecessary or excessive expenditure.
  • Arrange appropriate financing before you need it.

Don't:

  • Assume payments will be received on time.
  • Tie up excessive cash in working capital.
  • Overtrade by accepting orders you cannot finance.

We can help you keep a finger on the pulse of your business.

Call us on 01233 653006 and see how we can help you today.

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