3 Ways to Get your Cashflow Right

3 Ways to Get your Cashflow Right
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Do you ever get those times when your cashflow is in such a bad state that you can’t even pay bills? We know how you feel.

We come across this very often. One of the biggest struggles that businesses will face in their finances is their cash flow. When your cash flow is off, it can have a direct result on your business operations, on your overall business health, and on the success of the business in the long term.

When you improve your cash flow, and suppliers are being paid on time, your staff are being paid on time, and you are able to take a wage without feeling guilty it will improve your business exponentially

The Blockage.

Cash flow can be seen as the blood running through the organ of the business. When blood builds up in a particular area of the body, a blockage is formed and needs to be released. The blockage is your inability to manage your finances – your incomings vastly under your outgoings.

Cash flow is one of the main skills you will have two insure up absolutely top notch because without cash flow you will not have a business that runs effectively. If money is consistently blocked and not flowing through the company correctly you can quite easily end up close to bankruptcy.

Budget Right

First get your cashflow template right. Vertex 42 has a great template you can use to manage cashflow.

Take me to the download

On a day-to-day basis you need to know what is coming into your business and what is going out. When you have a clear indicator of incomings and outgoings you will be able to forecast ahead and look for certain breaks in your incoming/outgoing cycle.

For example if you have £20 coming in to your account and your bank balance is a hundred pounds, you will know that your bank balance will increase by £20 but you will also need to take into account the bills that will be debiting from your account in the next few days. That way, it’s easier to look at your cash flow on a daily basis for 10 minutes and make sure that your credits are higher than your debits, rather than monthly when the damage has been done.

Have a Reserve

We would always recommend having a reserve of cash that can be used in an emergency, for example when your staff hasn’t been paid or a very important bill (such as heat and light).

Simply having a reserve of cash however is not a permanent solution. It will only patch up the leakages in your cash flow and pretty soon you can find yourself using the temporary cash box for your day-to-day cash flow activities.

Invoice as fast as you can

You know the feeling. You’ve just slogged three weeks on a clients piece of work, you’ve met them a few times and you both agreed a price that will be paid upon completion of the job. It comes to payment time and suddenly the cheque-book is missing. The excuse given? You invoiced late and it needs to go into the payment processing department or other excuse.

It’s very important to invoice your customers as soon as you have completed the work, and if you can just do a quick follow-up call to say that the invoice has been sent. Keeping your invoices regular in this way will ensure that your cash flow will improve even if it’s by 20%.

Getting your clients to pay on time can be an uphill struggle. In our line of work we understand that accountants are the last people to be paid. However we still have to work as hard as the next person, and our cash flow is as important as the next business. That’s why we invoice as soon as we have completed the work and give clients a variety of ways to pay, so there’s no excuse when it comes to getting paid.

Sometimes you might find that customers are just very lazy when it comes to payment. You can nurture this mentality of regular payment through direct debit, standing order or other regular payment method-even if it’s cash stop this is actually a mindset change on the part of the client. When other bills are being paid, such as HMRC payments, bills, Council tax, your fees should also form part of the regular payment.

If you need help on any aspects of cashflow, call us on 01132486019 and we will be happy to help.

 

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About the author

We are a family run accountancy practice based in Leeds for the past 30 years. We give practical real world advice on moving your business to the next level with marketing, profit tips and taxation reduction advice. I'm Salman, running the Bookkeeping section at Huque Chaudhry. If you need any help with any aspect of your business, contact us right away.

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