When running a business your cash flow is crucial. Ensuring that you understand your cash flow will mean that you can grow your business and deal with any troubling matters as they occur.
I wanted to share some tips with you regarding your cash flow and how to understand it. This is not an exhaustive and full list but just a few points. Not all matters will relate to every business.
Your records
Ensure you use an accounting software so that you are able to run off reports and assess your position. There are a number of cloud accounting software but my favourites are Xero and FreeAgent (promise I’m not on a commission)!
There are lots of videos to help you understand your software and do take the time to watch some. Some of them even have their own training.
Chase your customers
If you operate a service business, you will be issuing your customers with an invoice and they will pay based on your credit terms. Sometimes, customers are late in paying and you need to be on top of this and chase them. A gentle reminder is easy to do. Your accounting software may be able to issue automatic monthly statements. You may be able to add a pay now feature to your statement or invoice reminders.
Don’t be afraid to chase.
Bill promptly
Sometimes we get caught up in other matters or we have a system in place which delays our invoicing. Look at what you do and see if there is a way for you to improve it and make it more efficient. Billing early means you get paid quicker.
Check your pricing
Bills have gone up lots over the past year or so. If you are still billing the same amount, your profits will be lower and this will affect your cash flow. Look at your pricing and ensure you are still making a profit. Don’t be afraid to increase your prices/fees.
Paying your suppliers
Many suppliers have credit terms with their customers. You can run reports from your software to establish what credit period you are using and compare this to what credit period your supplier is giving you. If you need more time to pay, contact your supplier and arrange a payment plan with them. If you do nothing and ignore them, they are less likely to want to do business with you in the future and may also charge you statutory interest on your late payment.
Stock
If you hold stock look and how you can sell old stock. Even if this is sold at cost value it is better than holding onto stock that may never be sold and may have to be destroyed.
VAT
If you are VAT registered ensure you are on the best VAT scheme and basis for your business. If you are a service business you may want to be on a cash basis, but if you are in retail or hospitality you may want to be on an accrual or standard basis.
If you regularly get VAT refunds, you may want to file monthly VAT returns so you get your refunds quicker.
Corporation tax due date
As a limited company you have the option of changing your year end and this can be done so that your corporation tax bill is due in a month when you are cash rich. Look at when this may be and work backwards to establish the best year end date for you. There are restrictions to changing the year end date of a company.
Please always seek professional advice before taking any action. We are happy to answer questions in future issues. Please send your questions through the contact us page on our website: www.champconsultants.co.uk
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