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5 ways to manage cash flow in your business and keep it healthy

5 ways to manage cash flow in your business and keep it healthy

“57% of UK small business owners have had problems with cash flow,'' according to recent research from Intuit QuickBooks. The average small business has missed out on work worth £27k because of cash flow issues. That’s a worrying place for a business owner to be, but it’s often preventable.

These five cash flow management tips will help you stay on top of changes and fluctuations in your business, and keep the cash flowing. 

1. Hire a bookkeeper and/or accountant (depending on which you need)

Sometimes you need an expert to take a look at things for you. Business owners have to distance themselves from admin as their business gets bigger, but it’s essential to stay on top of the finances. A trusted bookkeeper and accountant can be the person who takes care of all the details and provides you with the big picture.

Make sure you know the difference between a bookkeeper and an accountant!

A bookkeeper keeps an accurate and complete record of the financial transactions of a business. They will take care of the manual accounting processes, like recording figures and monitoring cash flow. 

An accountant will focus on the bigger financial picture and use your financial data to help and advise you, making sure you meet your legal responsibilities. They can also make predictions and recommendations, so you’ll know how to move forward and when to spend or cut back. 

You might need one more than the other. You might need both. The sooner you hire them, the sooner you can feel more confident about cash flow.

2. Forecasting

A cash flow forecast uses your current info (payables, receivables, trends, hiring plans…) to extrapolate what your cash flow will be like in the future. It’s basically about understanding how cash will flow in and out of your business over the next 12, 24 or 36 months, so nasty surprises are a lot less likely.

There are a few different cash flow forecasting tools out there, including Futrli, Float, Fluidly, Cash Analytics, and Anaplan. Some will even integrate with your accounting software - easy!

How to create a cash flow forecast: 

  • Choose a time period. 6 months is a good place to start, but you might want to plan for a longer period if you want to look further into the future.
  • Map out how much you expect to make from sales during that period. Try breaking it down by month so you can see the numbers in more detail.
  • Include recurring expenses, future hires and expected investments. This keeps a buffer for unforeseen expenses (there will always be some!)
  • Look at previous years’ figures. This will show seasonal fluctuations so you can be more accurate. If you expect to make more or less than last year, make sure you include that. Remember, a cash flow forecast is only useful if it’s realistic.
  • Factor in any new products or services you’re launching. This could mean more profit, or it could mean you don’t recoup costs for another 6 or 12 months. Whatever it is, put it in your forecast.
  • Prepare best-case, worst-case, and most-likely scenarios. There are always lots of factors to consider - market changes, customer habits, seasonal differences. To be extra prepared, create cash flow projections for a bad, stable, and brilliant next 12 months.
3. Chase invoices with the right software

Chasing after late paying clients is inevitable. You are in control of how you do it though. 

Strict credit control and automatic invoice reminders are vital. You won’t have to send manual emails to your clients’ accounts departments, or keep checking your own company account to make sure payments have come in.

An incredible “57% (of business owners) have been forced to ditch holiday plans… in favour of chasing late payments”. So if you want to hold onto your down time, get some software that chases invoices for you.

4. Track your expenses (and be strict about it!)

It’s easy for business costs to get out of control. If you’re not the type to check the company account balance every day, it might be time to start. 

The big business expenses:

  • Staff
  • Rent/mortgage
  • Utilities
  • Vendors and contracts
  • Essential stock
  • Equipment and maintenance

The smaller (but still significant!) business expenses:

  • Office supplies
  • Insurance
  • Marketing and advertising resources
  • Subscriptions to services/software
  • Travel and entertainment

Some of these payments are absolutely essential, but some could be reduced dramatically. Whether you’re the one monitoring accounts, or it’s someone else, sit down and go through all expenses in detail. It’s dull but it’s really useful. You’ll see your expenses drop next month, and you’ll make a significant saving over the year.

5. Protect your invoices

Business owners can often feel helpless when clients don’t pay up. Over a quarter of SMEs dealing with late payments have paid their own suppliers late, and 28% of business owners have even cut their own salary to make up for it.

Protect your invoices with Hokodo and ensure you get paid, even if your customer doesn't pay you.

  • Protect individual or multiple invoices.
  • We'll take care of the debt collection.
  • No fixed fee, you only pay for what you use.
Hokodo insurance solutions have got your invoices covered, so you can keep cash flow healthy.
Protect your business with Hokodo’s simple Invoice Insurance.