Cash flow can be a tricky business for business owners – financial issues are to blame for 65% of business breakdowns in the first five years. But starting good habits early can make all the difference.
There is certainly a lot to learn but it goes without saying cash flow is vital to business success for all business owners. Let’s see if we can make it child’s play for business owners to follow these fundamentals
Invoice. Invoice. Invoice!
It is obviously important to get paid on time but, for that to happen, you need to invoice promptly too. We see businesses all the time who delay or forget to send their invoices.
You need cash to keep your business running and poor cash flow can harm your progress even if you’re not owed a fortune.
Here are a few tips to help:
17% of small business owners said cash flow was their most significant issue; invoice late and you are giving your client an interest free loan!
Unless you’re trying to go out of business it’s important to keep accurate and relevant records. Adding all of your purchase invoice to your accounting software will ensure you are aware of all payments that are due; with no surprise bills you haven’t budgeted for appearing out of the woodwork.
Separately, when it’s time to invoice, you might assume businesses have a comprehensive list of materials and services to hand. Well, according to Xero’s research, 27% of small business owners admit to not always keeping track of the time and materials spent on a client’s assignment – making it much more likely they will forget a costly expense or not charge for work / time spent.
Trouble spots to look out for:
To stay compliant, you should keep perfect records; but having an organised and profitable business is an even better incentive
An average small business spends 1.5 days per month chasing payments! That is 1.5 days you could be doing billable work.
Look at it like this, you put “30 days” on every invoice so your clients have to stick to that, right? Well no, not really.
If your client’s default terms are 60 days or even 90, it’s easy for them to insist that those are their standard terms unless you’ve agreed otherwise. So, the first thing to do is to state your terms clearly and have these agreed before doing any work.
Here’s a checklist:
Make your invoice payment-friendly by including as many details as possible – sort code, account code, SWIFT, IBAN.
Look at collecting by direct debit using software like Gocardless! With Direct Debit you choose the dates you collect payments, meaning predictable cash flow for your business. Once a customer is set up to pay by Direct Debit, you can collect ad-hoc or recurring payments automatically on due dates.
Failing that, Xero allows you to have a “pay now” button so your client can click straight through and pay with a card using Stripe or Paypal.
Online accounting systems will:
Online accounting software, with direct bank feeds, makes it simple to reconcile your accounts, generate reports and more.
By staying on top of your records you will be sure to identify any invoices that are not paid, quickly, and ensure you do not pay bills more than once!
Because your information is secure in the cloud, you can easily stay on top of your cash flow wherever you are.
Using your Accountants expertise, you can consider asking for them to produce monthly or quarterly cashflow projections for your business; ensuring you have as much information on hand as possible to allow you to plan appropriately
Always consider where you can keep costs down. Can you cut back on utilities, rent or payroll? Maybe you are spending money on services you are no longer using or insuring items that you no longer have. Can you renegotiate the terms of outstanding loans or leases?
To the people in the accounts department you may be little more than a than a number; another person chasing payment. So, what if you were seen as a person – and just as important, treat the accounts department as a person too….
Apparently a third of small business owners don’t always try to establish a rapport with the person who actually pays them: 19% try most of the time, 8% try sometimes, and 6% don’t bother. You can imagine who’s at the back of the queue when there’s a problem.
As your business grows, it’s easy for the nuts and bolts of finance admin to come unscrewed, so keep these simple rules front of mind to keep the cash flowing.
And remember you are not alone. Your Magical Advisor and technology can help.
And, because it’s Xero, using it with your accountant should be child’s play.