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13 ways to improve your business cashflow.
The last few years have been HELL for small business owners. Whilst profit is always a driver, many businesses fail not from a lack of profit but from a lack of CASH. Managing and planning for the cash needed is something that can put DREAD into even the strongest of business owners.
Good cashflow depends on only two things. Getting more money from customers as fast as possible faster and lowering expenses as well as paying them out as late as possible.
Here are our top ingredients to BREW up a successful cash flow potion! (can you tell we love Halloween?).
1 - Accept: Put fingers to keyboard, (or even quill to paper and draw out a cashflow for the next 6 or more months. Be honest about what the current situation is and then pick some of the suggestions on this page that will help your business. Prioritise the ones that make the biggest positive change first.
You can download a template cashflow here:
2 - Remove the emotion from billing: We have all been there. You don't want to send the bill for work done immediately because your client is short of cash or it's near Christmas and you wouldn't like to receive a large bill around that time. Although you clearly care about your customers you need to care about yourself more.
Remove the emotion by laying out clearly what are your trigger points for invoicing. Ensure that you are clear from the start what trigger point you will be and make sure that the client is told this. If clients know when bills are to be raised they will be expecting them so you don't need to worry about sending that bill last thing on a Friday when they just approved their website update.
3 - Clarity of due dates:
Make sure clients understand clearly the due dates of invoices. Don't just hide them in small writing at the top of the invoice, communicate with them at the start. Make sure they understand the due dates and what happens if they are late. Perhaps you charge a late payment fee, or interest. Make sure that they sign this within their terms and conditions with you for service.
If they are late paying you can always refer back to the point that you did discuss with them at the beginning the terms and your disappointment at them missing them.
4 - Options Options Options:
Back when Butlers was formed Paypal was in its infancy and not something to be trusted. Today there is a whole monster mash party of providers offering payment solutions. Can you put links to take credit card payments on your invoices (XERO users it's simple)? Can you provide a link to pay by paypal? Could you even look at options to link up with a provider that spreads the payment over multiple months like Klarna? The more options you can offer customers the more likely they are to pay quickly.
5 - Money up front?:
If you are in a service business are you able to take an element of the work up front? If a client is serious about your service then they should have no problem providing you a percentage before you start work. Make it the normal treatment for all clients and see your cashflow move forwards substantially.
5 - Monthly subscription?
The accounting industry is an example of a success story of monthly subscription billing. When Butlers launched back in 2011 it was very much unheard of for accountants to charge a monthly fee for their work instead invoicing when complete. Monthly billing is now pretty much the industry standard. How can you use this example? Could you package up your services in such a way to invoice for it monthly rather than on completion? The regular recurring bills (and ideally payment by direct debit) will help your cashflow in a positive way.
6 - VAT Monthly:
If you receive regular VAT refunds (perhaps you are a building contractor) then consider switching to monthly VAT returns rather than quarterly. It does mean a little more work submitting them each month but if your bookkeeping system is up to date and controlled then it's a piece of cake. You can sit back and see your VAT refunds arrive in your account 12 times a year rather than 4.
7 - Claim all VAT Back:
It can be easy to underestimate how much VAT you are missing from claiming back simply by not submitting the VAT receipts to your accountant for each return. Accountants and Bookkeepers have strict rules on the documents they must have on file to reclaim VAT. Make sure that you submit all receipts to them each return to ensure you are getting the maximum amount back from HMRC.
8 - Reducing stock held:
Holding large quantities of stock (or Work in progress for service businesses) ties up your cash. Consider sourcing alternative suppliers than can provide stocks at quicker timescales so you don't need to hold as much. Sell of old stock at a lower price to clear our the storage room and bring in some much needed cash.
Finally, try to reduce the stock you hold down to meet your needs of customers without holding lots sitting around.
If in a service based business try to monitor your work in progress. Speak to customers amount billing at closer stages or month ends to bring in the cash sooner.
9 - Extend the terms:
Speak to your creditors about extending the time before you need to pay them. Perhaps a supplier may consider giving you an extra month before payment? HMRC are receptive to requests for time to pay. You can contact HMRC about any debt (ideally before the due date) and request it be spread out over a few months. Such agreements in advance will ensure no penalties are incurred and will help smooth the flow of cash.
10 - Seek investment:
Investment seems to be the golden phrase of small businesses with passion to grow. However, if you are a relatively new business who is producing something then you may be eligable to the SEIS investment scheme. This scheme means that people who invest small shareholdings in your business gain tax benefits for their investment. It's been exceptionally successful for some of our clients and a wonderful way to cash cash flow to support a business in the early stages.
11 - Finance don't buy outright:
If you need to purchase a large piece of equipment such as a van or IT then consider financing this through either the retailers own schemes or an independent finance provider. Be prepared you will be paying interest on this finance usually, however it will mean you are not spending large sums of cash out now and are spreading these over a few years. Just make sure the finance period is less than the useful life of the equipment!
12 - Seasonal raincoat:
If you have a business that has a seasonal peak and off peak time periods then consider diversifying. Many petting farms will convert to Santa Grottos in winter, Summer icecream vans that convert coffee vans etc. Try to think of a gap in the market that your business can fill during a period where your main trade or service is suffering exceptionally low demand. The duel trade will help maintain cash flowing into your business during the usual low months and smooth of your income throughout the year.
13 - To Scrooge or not to Scrooge
Review your expenses and cut out any that are not required. Ensure you are not working hard to earn money that is going down the drain.
However, it is important to also recognise that sometimes scrimping on some expenditures has a larger opportunity cost. Ensure you properly weigh up the cost of your doing some tasks yourself rather than outsourcing. If you are doing your own bookkeeping then how many hours are you losing that you could be out gaining new clients and new income streams. Could you be damaging your cash flow by trying to save money. Always consider that would be the best use of your time and how this will be for the largest benefit.
We hope the above ideas have been helpful. Butlers can offer assistance with cash flow forecasting and other needs. You can book a free discovery meeting with us here:
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