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Tips to avoid cash flow problems


It may surprise you to hear that sales in the retail sector fell in the lead up to Christmas 2015 compared to 2014. Some small retailers are feeling the pinch at the moment, especially with the increase in the trend of customers turning away from the high street in favour of online shopping.Cash flow problems

As many SME’s will know, all it takes is a quiet couple of months of trading to cause cash flow problems. This can result in payments to suppliers being missed and HMRC tax arrears start to mount. Before you know it, the business is in financial trouble.

Many business owners will struggle on through the difficult times.  In reality this should be a wake up call to seek help and make changes to ensure their businesses does not end up in the same situation again.

Some tips to avoid cash flow problems for your business:-

1. Prepare a detailed cash flow forecast. It is so important for business owners to prepare detailed cash flow forecasts. For some business owners, the preparation of a cash flow can appear daunting at first. Remember, it doesn’t have to be anything fancy, a simple excel spreadsheet will suffice.  If it seems too daunting, then speak to your accountant who will be able to assist. The important thing to do once you have completed the cash flow forecast, is to monitor it on a regular basis as it will highlight if there are likely to be any significant cash flow problems on the horizon within the business.  There is absolutely no point going to the trouble of preparing a cash flow forecast, if you don’t monitor it. Set aside time every week to review the sales and expenditure. Once you have done it for a few weeks it will become the norm.

2. Don’t delay in invoicing. A simple way to keep a speedy flow of income coming into your business is to raise invoices as soon as the work or service has been provided. Don’t wait until the end of the month to produce your invoices in one batch.  Avoid a cash flow problems and invoice when a job is completed.

3. Review your debtors. Spend time reviewing your debtors to establish whether any of your customers/clients are late with their payments. If so, react now and pick up the phone and talk to them to see whether there is a problem. Don’t think ‘I’ll leave it a few days’ as we all know how quickly time passes and before you know it a few days has become weeks. By being pro-active and ensuring that your debts are paid on time, this will help with your cash reserves. This will assist if your business is going through a lean time. If you are experiencing issues with debtors not making payments on time, why not consider commercial debt collection where they can chase a payment on your behalf? 

4. Review suppliers. Take time to examine your expenditure in more detail. Can you save money? I often speak to business owners and ask why they use particular suppliers. More often than not their response is ‘I have always used them’. My advice is to shop around, see what the competition is offering. Even if you obtain a saving of a few percent, it will increase profitability. In our personal lives, how many of us are put off by changing utility suppliers, insurers etc? I know that in the past I have thought it’s not worth the hassle but I have proved to myself that it is worth it and it isn’t time consuming as most of the work is done for you. A few phone calls and research on the web could save you hundreds or thousands of pounds, releasing more cash flow. 

5. Review payment terms.  Review your payment terms and those of your suppliers. Do they match? For example, if you allow your customers 60 days to pay and you pay your suppliers within 30 days then this could lead to cash flow problems. Try and bring the two in line with each other. 

These are just some of the immediate steps you can take to improve cash flow, working capital and ultimately financial success. If you find your business could benefit from one to one advice and guidance, please call us on  01489 550 440.

Sandie Williams By Google+ |
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