Managing cashflow is tough. When it comes to running a business, making money is only half of the equation. Your sales are high, your customers are delighted with your services and products, but you’re still struggling to make a profit. Does this sound familiar?

As a business owner, you give countless hours into your company. You find new ways to improve what you do, market your brand, make a name for yourself.

Despite business being better than ever, you still seem to find yourself against the wall with your outgoings every single month; struggling to make your money stretch to cover bills, wages, suppliers’ costs and everything else.

Cash flow problems can affect the very best of businesses. And it always leads to the same question.

Managing cashflow – where is all my money going?

There are a number of issues that may be causing your poor cash flow. Luckily, there are also very simple ways to resolve them, and get back to making a profit.

Managing cashflow – my money doesn’t last the month

If your bank account seems to constantly flip between bursting with money and being empty, it’s likely you have what is known as a lumpy cashflow.

This usually happens with businesses that provide complex or large-scale products and services with high order value. These are usually paid in a lump sum on completion or delivery.

After days or weeks without any money coming in, a suddenly full bank account can make you feel like you’ve won the lottery. But many business owners will begin allocating this money to new projects and renovations, sometimes not considering that the money will need to last until the next payday.

Smooth cashflow also comes with its own problems.

Companies that offer more simple goods or services often receive payments every day or every other day and can struggle to know how much to put aside the right amount of money each month for bills. Sometimes, what’s in your bank account might flatter to deceive and you may not actually have enough put aside for dealing with periods of large cash flows out.

Forecasting cashflow is an essential task in running your business and making sure you don’t run out of money. If your cashflow is lumpy, make sure you always know:

• When your next project is,
• How much it will pay,
• What bills, suppliers and other expenses you will need to cover until then,
• When you will receive payment,
• How likely it is the customer will pay on time, and
• If it will be enough to cover your expenses until the project after that.

Once you know all of this, you can work out how much profit you will actually make and have a clear idea on how much cash your business needs to retain week to week

An organised calendar will also help you plan out your budget.

Knowing when you will receive payments from customers and when bills are due will keep your business running smoothly, no matter what kind of cashflow you have.

Also, take account for these regular cash flow pressure points –

• 1st of the month – business rates and commercial mortgage (if you own your premises)
• 7th of the month once a quarter – VAT day
• 22nd of the month – PAYE reconciliation
• 25th of the month each quarter – rent day (if you’re in leasehold premises)
• Last Friday of the month – staff and director pay (minus income tax and both NICs)

Managing cashflow – my customer hasn’t paid yet

We understand how uncomfortable it can feel chasing a customer up on their payment. Getting your invoice out as quickly as possible is one thing, receiving the payment is something else entirely.

Some of your customers will make life easy for you by responding to your invoices quickly and paying straight away. Others, you will feel like they’ve dropped off the face of the planet.

One way to encourage faster payments is to be accommodating of your client’s preferred payment style. Cheques may seem outdated and overly time consuming for some, but to a customer who pays all their suppliers the same way, changing the way they pay could seriously throw a spanner in the works for their systems.

Where possible, encourage your customers to pay you by direct bank transfer, debit or credit card. These transfers usually come through straight away, freeing you from long process of waiting for a cheque to clear. The fees incurred with these kinds of payment method are also often cheaper than the handling fee of cheque and cash deposits. Direct debit is also a great idea for clients you bill regularly.

Bad debts can occur when money owed cannot be recovered from a customer. Especially when accepting payment by cheque or credit cards, make sure you conduct in-depth checks of your clientele.

Make sure you have set trigger points for your invoices: for example at the start or completion of an order, or at key points throughout the project. Make sure your terms of payment are strict and clear.

Managing cashflow – my suppliers want payment before I’ve been paid

When your credit terms are out of sync, it can play havoc with your finances. Your customer has 30 days to pay their bill, but your supplier wants their money within 14 days. This is a huge problem that causes negative cashflow in a lot of companies.

The best way to tackle this is by talking to your customers and suppliers. Try to renegotiate terms to help solve your problems. It may not always work, but it doesn’t hurt to ask.

With customers, you could offer incentives like early settlement discounts to encourage prompt payments. If you’re completing a long-term project or a particularly large order, you could also offer multiple stage payments whilst the work is being done.

Your client could well be experiencing their own cash flow problems, so it could work better for you both.

When it comes to paying suppliers, if you don’t have the money to hand, you could look into factoring. A financial institution lends your business a short-term loan secured against the value of your issues invoices. You can pay your suppliers then give the money back when you receive payment from your customer.

Managing cashflow – your cash flow team at Burton Beavan

If you’re worried about cash flow or the time customers take to pay, you’re not alone. Work with us to find a way of managing cash that works best for your business and for your peace of mind.

Please call us on 01606 333 900 or email us at hello@burtonbeavan.co.uk