Effective cash-flow management is one of the most critical factors in the survival and growth of a business. As long as you have a saleable product or service, your costs are under control and the business is profitable, there’s no reason why your business can’t thrive.
Failing to properly manage your cash-flow problems is the one factor that can undermine all of the above. Having a regular flow of money coming into the business to cover payments to suppliers, employees, lenders, utility providers and any other third parties is essential. Fall behind on these payments or paying your taxes and your company could be at serious risk. Problems paying HMRC taxes is usually the final nail in the coffin of struggling businesses and can lead to insolvency, winding up and compulsory liquidation.
Preparing a thorough cash-flow forecast is essential. Not only is this key financial statement simple to prepare, but it can help to identify potential problems before they arise. There are then a number of company cash-flow fixes you can implement to get your business back on track before it’s too late.
1. Cut costs
Keeping on top of your business’s costs is a continuous process. It might sound overly simplistic, but regularly moving to the best tariffs and deals can lead to savings that soon add up. The threat alone that an energy provider or key supplier could lose your business is usually enough for them to offer a better deal. As a general rule, if you agree to the first price you have been offered, you’re probably paying too much.
2. Streamline the products and services you offer
Many businesses make the mistake of trying to grow too quickly by offering an ever-increasing range of products and services. The more products and services you offer, the higher your costs will be. The core products or services that brought customers to your business in the first place are usually the most profitable. This is where your real expertise lies, so reverting to these core lines can give you a quick cash-flow boost.
3. Audit your finances
Carrying out a proper review of all your business’s outgoings and incomings will help you identify where savings or improvements can be made. Perhaps you’re paying a monthly fee for software you hardly use, or forking out for advertising that isn’t bringing in any leads?
4. Increase your profit margins
Increasing your profit margins is not necessarily all about putting your prices up. The cost cutting exercise outlined in point 1 and the streamlining of your product and service offering will help to improve your profit margins. However, it is also worth carrying out a competitor analysis to see how your prices compare. You could find there’s some room to manoeuvre.
5. Improve your credit control process
You could have plenty of money coming into the business, but if your credit control procedures are lax you’ll never know when payments are due. you should think carefully about the payment terms you offer your clients. For example, a 90-day payment period is likely to cause more cash-flow problems than a 30-day payment period. Late payments are at a two-year high, so it’s essential you keep on top of the collections process. If customers are late to pay an invoice, you need to have an established collections process in place.
6. Update your accounting system
It is a legal requirement for companies in the UK to keep full and proper financial records. Failure to do so and you could face accusations of unfit conduct as a company director. Properly maintained computerised accounts are crucial to keeping you in control of your cash-flow situation. Management reports can go one step further and provide daily updates on your cash position.
7. Explore alternative finance options
There is a range of alternative funding options out there to help small businesses improve their cash-flow position. Invoice financing releases a cash lump sum to the business every time an invoice is issued. It is then the finance provider’s responsibility to collect the payment from the customer. Once the customer has paid the balance, you will receive the remainder of the invoice, minus a fee. As well as instantly improving your cash-flow position and removing the worry of late payments, this is also a credit line that will increase in line with your sales.
8. Negotiate with your creditors
Ignoring your debts is the worst thing you can do when you find yourself in a precarious cash-flow position. Creditors will be open to negotiators or will be willing to give you more time to pay if they see you are serious about making your repayments in full. HMRC will even consider giving you more Time to Pay as long as you inform them of the problems you are having. The key is to identify and deal with the problem at your earliest opportunity.
The help you need to implement your cash-flow fix
At Jameson, Smith & Co. we can help you explore alternative finance options and can negotiate with HMRC on your behalf to obtain extended payment terms. Please get in touch with our team for an obligation and cost-free discussion of your circumstances.