Cash Is King.
That’s the first rule we were taught in accounting, and its been sound advice. And at times, when business is thriving and cashflow is good, its easy to fall into bad habits, which when times are challenging, create a lot of problems.
In the current crisis, almost everyone you speak to will talk of struggles and challenging times. Whether they are business owners, or home owners. Its a tough time for all.
We’ve come up with some tips to help your business cashflow.
When dealing with suppliers, contractors, or customers, there is no harm is negotiating. The common term is “if you don’t ask, you won’t get”. Alongside this, there’s a manner of asking too. We don’t encourage challenging behaviour! But ask your suppliers, if they can offer discounts. Speak to your customers, if they can make an initial upfront payment to assist with your initial outflow. if its a large project, negotiate payment stages
Offer discounts to your customers for prompt payment. On the flip side, charge interest to those who pay late.
PLAN AND PREPARE FORECASTS
Prepare forecasts and review them regularly. Review expected income and expenditure for the following month. And plan your cashflow for one off costs. Most businesses will have to pay their taxes once a year. Ensure its in your forecast so you expect it!
Until you are paid, your sale is not complete. Its all good and well completing tasks and projects. But if you’re not issuing invoices, you’re going to run out of money, FAST. Make it a priority to issue invoices as soon as possible.
ASSESSING COSTS OF CONTRACTS
Businesses fall foul of overtrading – when costs relating to sales are incurred prior to the payments being received. If you’re looking at taking on a large contract, review your cashflow to ensure you can manage. If not, look at other options, such as negotiating an upfront payment
KEEP GOOD RELATIONSHIPS WITH SUPPLIERS
Keeping strong relationships with suppliers can come in handy if you need to extend credit. Mutual understanding and respect allows businesses to support one another through challenging times. Also keep open communications with suppliers. If you are facing financial difficulty, don’t become an ostrich. Negotiate different terms if possible.
BE CLEAR ABOUT PAYMENT TERMS AND CONDITIONS
Be sure you and your customers know your terms and conditions surrounding payments of your invoices. Stick to those terms yourself and ensure your customers do too
CUT COSTS WHERE POSSIBLE
Shop around when dealing with new purchases. Have a look at whether you have any unnecessary costs and see when you can trim back some expenditure
Look at other ways to fund your business. If something is available on finance, consider the options, rather than exhaust your working capital. There are a wide range of financing options available for businesses.
KEEP COMMUNICATIONS OPEN WITH YOUR BANK
Banks don’t like surprises, so keep communication open with the bank if you feel your facing difficulty. If you could do with extra finance and you know it, from your forecasts, let them know!
SF Chartered Certified Accountants are a team of accountants who work with the small to medium sized businesses in the Birmingham area and across the country. Feel free to contact a member of the team to arrange an initial consultation.