Sifting through the assortment of failed micro businesses, time and time again you’ll see that poor cash flow sowed the seeds of failure. If mismanaged, poor cash flow can cripple a business.
If you want to come out of tax year 2013/14 in a better financial state than you came into it then, you’re going to need to get excellent with your cash flow management. Knowing the tax facts will help a little as you’ll be less likely to face fines, but above all else, your credit control will need to be top notch.
Struggling on the cash-flow management front? Here’s some tips and techniques that should get your accounts out of red and into the black.
Get cash in ASAP
At the crux of good cash-flow management is getting cash in quickly. Cash is the lifeblood of a business after all.
Going against conventional invoicing can help in this. It’ll take some nerve, but try asking for payment upfront instead. As long as your product or service is excellent, then your customers and clients should oblige. Believe strongly in what you’re offering and demonstrate to potential clients that it’s only fair that they pay up front, so as to reimburse the costs you’ll incur adding value to their business.
Elsewhere, do some sums and see what you can offer customers and clients in the way of discounts. Offer these to customers who bulk buy or commit to your service for a long period of time. Meanwhile, if you’re a service business, consider establishing a rolling monthly payment process. You’ll then know what’s coming in and when.
Using these sorts of methods, you should get money flowing into your accounts sooner, rather than later.
Where it’s reasonable, delay your outgoings
This will sound a tad hypocritical given what I’ve just suggested, but if funds are particularly tight, try where possible to delay your outgoings. See if you can get extended terms and, if needed, negotiate them when and where they’re possible.
That said, if you’re in a favourable financial position, get paying your debts promptly. Some good will can go a long way and likewise, be prepared to help your fellow businesses out should they be in similar payment peril (as long as they’re not a competitor!).
Also, always look at what you can outsource. Bringing in equipment and staff can prove costly, so try to avoid these big payments unless you’re confident you’ve got the financial capacity to cover all the costs.
Continually forecast your finances
This is integral to achieving a healthy cash-flow position, as it ought to better inform your cash-flow management strategy.
Through projecting potential income and then contrasting it with potential expenditure, you’ll be able to gain a better picture of how your future finances might look. Sometime should be set aside to do this every week, if not every month, as it’ll provide you with a better picture of how strong or weak cash-flow might be in the coming days, weeks and months.
Done correctly, forecasting can illustrate when a change in tactic might be needed, ensuring that you’re suitably equipped to bridge a difficult period ahead.
And finally, audit your tax efficiency
Interlinked to achieving a good cash flow position is being a tax efficient business, as it’ll help you to achieve peak profitability.
As I wrote a couple of months ago, there’s a number of company structure options available to the micro business, operating as either a sole trader, limited company or partnership all bringing their own benefits and drawbacks.
The size of your micro business and the stage of its development will dictate which is the most appropriate for you and it’s something that you should continually examine, as the appropriate structure could make your cash flow position that little bit rosier.
Using all these collective methods, you should spare yourself from becoming yet another cash-flow casualty. Tax year 2013/14 might be a tumultuous one, but with good cash flow management, knowledge of the tax facts and accountancy organisation, you’ll stand a better chance of seeing it through.
See you on the other side, micro businesses!