Cash is key to success when it comes to new businesses. And a lack of it is a key reason why businesses fail.
The main aim behind every business is to be profitable and that means keeping tight reins on your expenditure, especially when you’re starting out….watching every penny that goes in and out and most importantly, being able to account for it all.
It can be all too much in the beginning to keep an eye on your business, your staff and your supplies, so here are some top tips to understand more about managing cashflow from top business adviser Neil Debenham.
What is cash flow?
Cash flow is simply the movement of funds in and out of your business and there are two types: positive and negative.
Positive cashflow: This is when you are collecting more cash through sales or jobs than you are spending on, for example, wages or rent.
Negative cashflow: This is when your expenditure is higher than your incoming cash. This can mean trouble for businesses if it persists.
Send invoices promptly
Negative cashflow can be avoided by ensuring you always send an invoice when work is completed. That way it doesn’t get forgotten about. If you keep track of this using an app like Free Agent, then you never lose out on cash.
Waiting two weeks after work has completed means the client has at least seven but more likely 14, days to respond to the payment, meaning you could be getting behind with paying your office energy bill, for example.
Invoices should be sent by email, so there is a paper trail. Printed out sheets can be easily lost, late or not received, and therefore not chased for several days.
Packages, not hourly rates
Offering a retainer package for work rather than an hourly mate means you always have a good cash sum in the bank. These can be set up and billed in advance, which means you don’t fall into arrears.
Asking for deposits for work up front means there isn’t a worry about getting full payments on completion of work.
Emergency cash fund
You just don’t know when a problem will strike that leaves your business in despair. Neil Debenham says that the Coronavirus is a prime example. “No business could have foreseen that they would be having to close for at least six months and struggling once re-open.
“For times like these, it’s a good example to have some money banked away in reserve. Could you afford to pay your suppliers if there were unanticipated demands on your cash flow? What if a client refused to pay up, leaving you short to pay your staff wages?”
There are so many apps available to help you manage cashflow, no matter what size your business.
If you feel like your endlessly making trips to the post office and paying out tiny amounts like £0.86 you may think it’s not worth keeping the receipts. But those amounts build up. And before you know it, there’s £100 unaccounted for.
Many apps allow you to take a quick photo on your phone and it automatically sorts them into pots for you, so that you have the proof of your expenses altogether. This is a great way to handle your money as you can use them from any device while on the move. They are especially handy if you have limited time for admin jobs.
There are lots of ways you can reduce your expenditure if you’re starting up your business. Help get a positive cashflow going. Rather than buying brand new laptops, for example, you could buy reconditioned ones which are just as good and often half the price.
You should avoid unnecessary costs like having landlines if you can make calls from your mobile and ensuring everyone turns lights off when not in use to save money on energy bills.