You’re a business owner so you probably know that good cash flow management is vital to growing a healthy business despite the fact a number of factors were taken out of your control some weeks ago. What many business owners won’t be aware of is what do you have to do to turn a cash flow problem around? And how can you manage it effectively to prevent it getting worse?

Emma White, Partner at A4G, has shared her 8 top tips for strong cash flow management to help get your business through the coronavirus crisis.

1. Understand the difference between cash flow and profit 

‘Profit is sanity, but cash is King’

You may have heard us cite the famous phrase in our dedicated article: Turnover is Vanity, Profit is Sanity, Cash is reality. Making a profit is certainly important for long term prosperity, but without cash, you have no business! You may be left wondering, ‘how is my business profitable, but tight on cash?’. Many businesses have forecasts for profit margins years ahead, but don’t get a cash flow forecast in place from the get-go – a common reason for early business failure.

Skip the steps of creating your own cash flow overview by downloading our Free Five-Minute Cash Flow by filling in the form below to see exactly how much available cash you have and how much you ought to have. This will also ensure you don’t forget about any time to pay arrangements you have now.

Xero and QuickBooks online clients can also get a more detailed cash flow that can be updated weekly, monthly or whenever you need by using Float as part of our cashflow service. Talk to your Principal Adviser (or call us on 01474 853 856) to hear more about our cash flow service and Float.

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5 Minute Cash Flow Forecast Tool

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2. Get some accurate management accounts 

Cash flow confusion will continue if you don’t have or don’t understand your management accounts and what they’re telling you. If you use a computerised bookkeeping package, then your system is capable of producing reports which show you how your business is performing and help you to identify small problems before they become big ones!

Find out how other business owners are using their data to grow their business with monthly or quarterly Management Accounts.

3. Make sure you are making a profit

Once you have some reliable management accounts you can start to think about profitability. Most businesses will be returning at a reduced volume of business than pre-lockdown and have tough decisions to make on bringing staff back which will be based on a bit of guesswork at first. It’s important to have sight of monthly profit as soon after the month-end as possible so you can consider how to improve profit.

Do you have enough customers, are you getting enough work from them? Are you pricing too low, or too high? Consider asking for referrals from your clients to other customers – in these times we are all in it together!

Are you over staffed if you bring all your staff back? Can things be made more efficient to better use the few staff you have back or make room for growth?

Also, review the costs your business incurs and consider whether you are getting the best value for money. Look to negotiate better prices with your suppliers. Do you still need that big office with the huge rent bill for your small group of employees? I’m sure we’ve all learnt lessons in how flexible working can help our customers and staff alike.

4. Use some of the free time you have now for strategy

Every minute that you’re getting lost in the day to day operations of your business, picking up slack and sweating the small stuff, you’re not spending time on medium or long-term strategy. Before you know it, another week has passed, a month, a year, and you still haven’t had a chance to sit down, assess the reality of your situation and set goals for your business’ future.

For most business owners, this time out was decided for you, but it’s important you make the most of it to consider your future strategy as we return to a very different world. What do you need to do to adapt? Is there a new market you could now enter?

Make your business less dependent on you, by using our techniques for effectively delegating, and using technology to take the work off your hands and get tasks and responsibilities sitting with the right people.

5. Get that invoices out!

As Benjamin Franklin and the entire business community would say: Time is Money. And time really is money when it comes to getting your invoices out quickly after you’ve completed the work. Whether you have short or long payment terms, your customers aren’t even going to start thinking about paying you until the invoice is in their hands. So, get it into their hands ASAP!

It goes without saying that sending an invoice via email is quicker than by post, but there are now far more advanced tools that speed up the whole process of payments in and out.

Moving to a Cloud accounting software will drastically reduce the time you spend on invoicing, with the added flexibility of being able to do it on the go!

6. Get paid faster!

Sounds like a repeat of point 4, but it’s not. You may have got that invoice out the door like Speedy Gonzales, but if you have limited options for quick payments, you’ll still be playing a waiting game. Make sure your payment terms are set out before you start the work and confirm in writing. Given the current climate, those with poor credit ratings you may want to get a deposit paid upfront too.

When it comes to the process of paying, there are now plenty of secure online payment services you can offer your buyer that don’t leave you hanging on a cheque. We recommend GoCardless, an online direct debit service that takes control of the whole collection process on your behalf.

See the magic of GoCardless and how it can work for you.

7. Automate your credit control

One of the most damaging factors to your cash flow is poor credit control, and when we work with businesses, we often we find very stressed credit control managers exhausting themselves to reduce the cost of debt recovery.

You can drastically cut the pressure and reliance on your staff by setting up an automated system to chase those habitual late payers. Sage is the only one of the big 3 accounting software packages not to have this as a standard feature.

For more advanced and bespoke automated chasing, we tell all of our clients about Chaser – a simple to use software that has completely transformed our own credit control.

Here’s how we reduced our client’s time spent on credit control by 90%

8. Ensure your business is financed in the right way

These are some of the first steps you can take to improving your cash flow management. But the government supported lending in today’s markets may also prove as a good temporary buffer but there is a lot to consider when thinking longer term finance. Always contact your Principal Adviser so we can discuss whether this is the right move for your business.

9. Ensure you are using the best accounts package for your business

The right accounts package is key to preventing cash flow problems. By ‘right’ we mean a software that has the potential to alert you of any problems that are likely to arise, before you find yourself drowning in the middle of it all.

We use Xero, which gives us real-time access to all our numbers, which is the key to being in complete control of your cash flow. The Xero dashboard is a one-stop-shop for all your critical numbers and key performance indicators (KPIs). You can easily see:

  • What your costs are for the month – i.e. your bills
  • What invoices are due for the month and your total income expected
  • Which invoices are overdue
  • An overview of cash in and cash out for each month

Xero, of course, isn’t the only accounts package on offer. There are several factors you might want to consider before you make a choice out of the wide selection on offer today. Take a look at our top three recommendations and our list of pros and cons here.

10. Calculate your real break-even point

The phrase “real break-even point” refers to the level of sales you need to cover your costs and leave enough profit to cover tax and the drawings you need to live on. Conducting a breakeven analysis is vital to:

  • Help set sales targets
  • Identify your required gross profit margins
  • Understand the impact of an increase or decrease in prices
  • Be able to consider whether you need to reduce your drawings

Read more about how to calculate your real break-even point here.

11. Utilise the help that is available from the Government

Since Coronavirus started impacting businesses, the Government have continuously announced ways to help businesses get through this tough time, including:

Don’t be afraid of your finances, get in control of them!

There’s a lot to consider here, we know! So, we’ve put all these considerations into an ‘Improve and Grow’ session where we will identify the areas where improvements can be made in your business and provide an action plan to see it through. To find out more about this and book in your session to start getting on top of your cash flow, enquire about this using the form below.

Contact me today!

Emma White

FCA

Partner

01474 853856

Send me a message

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