Cashflow isn’t about saving money or having money in the bank, whilst that is important, there are many factors to consider in order to improve your cashflow within your small business. Poor cashflow is a significant factor in why many new businesses fail and why even longstanding businesses hit hard times.
There are many circumstances which are out of a business owners control that lead to poor cashflow, however we have some tips to share with you that will not only improve your cashflow, but it will help you set boundaries in your business and run things with a ‘best-practice’ mindset which will also support your in scaling your business.
Use of Cloud Software to Improve Your Cashflow
Using a cloud bookkeeping software is a sure way to give you a better oversight over your cashflow and brings many other benefits.
- Up to date records, helps you keep an eye on your financial position
- Easy to see who owes you and who you owe
- Credit Control Solutions – most bookkeeping software has automatic payment reminders or the ability for you to send statements to your customers
We highly recommend using Xero as an intuitive solution to your bookkeeping. If you get your Xero subscription through us, we pass on the discount to you, making it even easier on your cashflow.
Master Your Payment Terms
Your payment terms should work for you and your business. We recommend being transparent with your customers about your payment terms. You could even consider discounts to encourage customers to pay upfront or early and there are rules that allow you to charge fees and/or interest for late payment.
Sometimes a gentle reminder may help collect in what you’re owed before you consider escalating but you should ensure these are clear to your customers when you first start working with them.
Consider stage payments for long projects or payment schedules too, this may incentivise and make you more competitive in the market as your competitors may not offer this. Your customer will want to watch their cashflow as much as you do and you could have a steady regular amount coming in.
Mastering your payment terms of your supplier is vital too for your payments going out. If your supplier has given you payment terms, then taking advantage of these could also boost your cashflow and liquidity.
Make it Easy for Your Customers to Pay
Have you received an invoice that you forgot to pay or paid it late, because you then had to login to your online banking, set up a new payee? It’s even more difficult if you’re doing this on a smart phone or tablet, flipping between applications, logging in and out of the banking app… what a headache!
We asked a supplier in advance of receiving a service, could they send a link to pay, as it would then mean they could get paid so much easier. They said that they would send a payment link when they invoiced us. However when the invoice came through, there was no link…
We asked why and their response was ‘GoCardless & Stripe both take fees, and fees suck!’
You know what else sucks… not getting paid!
So we paid the supplier of course but this highlighted to us how many small businesses prioritises making small cuts on costs, compared to improving cashflow.
For comparability, GoCardless and Stripe charges approximately 1-1.4% depending on what model you opt for, where as the cost to your business of not having cash in the bank is far higher, for example HMRC interest rates on late payment are in excess of 7% and borrowing from a bank will likely cost you even more.
There are lots of ways you can improve how you collect money from your customers, if you make it easier for them, they have no excuses.
Tax Planning for Better Cashflow
There are lots of angles to improve your cashflow when it comes to tax planning. Our key recommendations here are to know where you stand and make savings as you go along, so you’re not scrapping for the money when it comes to liabilities being due. Here are a few ideas:
- Monitor your profits on a monthly basis – you can then put money aside each month so you accrue enough savings for your tax
- Monitor your ongoing VAT liabilities – you can check your VAT liability in your software, so you won’t be left with a shock!
- Check your VAT scheme – if you qualify for cash accounting, make sure your software is set up for this if you would be better off paying your VAT based on the payment dates instead of the invoice date. This way, you won’t pay VAT on sales invoices that you haven’t received.
- Consider switching to monthly VAT – if you’re struggling with big VAT bills and not great at separating this out for 3 months, you may be better off switching to monthly VAT and making payments more frequently.
- Review how you pay yourself – depending on how your business is set up, there are many ways you can pay yourself. If you’re a Limited Company then you may want a blend of salary and dividends.
At The Indie Partnership, our solutions support you to improve your cashflow. We can advise you on the most tax efficient ways to run your VAT, pay yourself and give regular updates on your tax liabilities as your profits accrue.
Forecast & Planning
Forecasting & planning are vital when it comes to improving your cashflow. Here are our insights for your future cashflows:
- Be realistic when you’re planning for seasonal fluctuations
- Emergency cashflow solutions – depending on your business, you may need to consider how you can access resources such as financing, overdrafts etc
- Build an contingency and emergency cash reserve, enough to cover your overheads and running costs for a period of time
- Regular review and adjustments of your forecast – be fluid and realistic for changes as they come
Improving Your Cashflow – The Indie Way
At the Indie Partnership, we know there are multiple solutions and ways to improving your cashflow. We’ve got you covered in your tax planning and an array of solutions and recommendations to help your business thrive and master your cashflow.
Contact Us to discuss implementing new strategies and build a stronger, more resilient business with a healthy cashflow.