Five ways to improve your cash flow

Pressing cashflow button

Berley’s dedicated accountants have years of experience in assisting businesses to reach their full potential and can help you to manage your business’ cash flow effectively.

Running your own business can prove to be an incredibly fruitful experience, but you will continuously be faced with challenges along the way, particularly in terms of cash flow. According to research conducted by QuickBooks, almost three in five small business enterprises (SMEs) have experienced issues with their cash flow. Cash flow issues are commonly caused by late payments from clients, a decrease in sales or poor cash management. SMEs who fail to improve their cash flow will struggle to meet their financial obligations like paying their staff and suppliers, which can ultimately lead to insolvency.

At Berley, we too have built a business from scratch and understand the obstacles that entrepreneurs across London face, including cash flow management. Using our solid accounting and tax knowledge, we help entrepreneurs and small business owners to keep control of costs, stay on top of cash flow management and help them grow from strength to strength. In this article, we want to share five tips that can help to improve your business’s cash flow. Before we start, we would like to take a step back to discuss what cash flow is and why it is important.

What is cash flow?

Cash flow is the amount of money going in and out of your business as you trade. Cash flow is a natural cycle – you pay for expenses and purchase assets which will then be used to generate revenue from your customers who are buying your business’s services and products.

If the cash outflows are more than the cash inflows, this is called a cash flow gap. To find out more about cash flow gap and how to fix it, follow the link to our post “Cash is King?”.

Why is cash flow so important?

When starting up a business from scratch, cash really is king because it sustains the operation and gives the business a chance to succeed. Having sufficient cash on hand will allow you to meet financial obligations; without it, you cannot pay bills and consequently, your business may be liquidated or wound up.

The good news is cash flow is something that you can manage and plan in advance with the support and advice of an expert accountant. To get you started, you can follow these five useful tips:

Create accurate cash flow projections

A cash flow projection or cash flow forecast sets out the flow of cash coming in and going out over 12 months, though you can design it to cover a shorter period. It should include an estimate of likely sales, projected payment timings and anticipated costs.

The focus of a cash flow projection is not on profit or loss, but on the amount of cash you have at a certain time. If you know that you will have a significant amount of cash in six months’ time, you can then decide on the timing of an investment like hiring another person to grow sales. Equally, if you know that your cash reserve will dry out in nine months’ time, you may choose to sell your account receivables to factoring companies for cash before it happens.

At Berley, our small business accountants in London work with entrepreneurs across London to strengthen their cash flow management and lower the risks associated with cash flow gaps. Give us a call on 020 7636 9094 and we will be happy to assist.

Don’t delay when collecting your debts

SME owners know the stress that comes with attempting to collect overdue payments. Research conducted by the Federation of Small Businesses in the UK has even shown that SMEs are owed an average of £6,142 mostly by larger firms not paying them for goods and services on time, resulting in cash flow difficulties.

To prevent this, it is important that you inform your customers of your payment terms before proceeding. In the case that you are offering a professional service, ask for a payment up-front and request for the remaining balance to be paid at each milestone. You may also let the customer know that you will not proceed unless the previous payment has been settled.

The moment that you realise a particular client is not following through on their payments, you should follow up with phone calls and re-issue the invoice. If a customer does not seem to be paying, you need to act fast to recover the debt. The quicker you chase a customer, the less time and resources will be wasted trying to recover debts.

Review your overheads

Business overheads refer to expenses that are related to the day-to-day running of your business and have nothing to do with a service or product sale. Overheads can include fixed monthly or annual costs like utilities, rent and salaries.

When your cash reserve is low, reducing overheads is a common way to address the issue. For example, instead of hiring a full-time marketing employee, consider hiring a freelancer who is likely to be cheaper than having a permanent staff.

Accept multiple forms of payment

When we published the article “Accepting card payments, what are my options?”, we heard from customers saying they enjoyed reading it. The truth is, if you are in the B2C space, you must accept multiple forms of payment to stay competitive.

For those that are B2B, you know that bank transfer is the most common payment method. Payment methods like direct debits and PayPal are not used as much, but it is worth considering direct debits because they will ensure that you receive payment on time.

Take advantage of online accounting software

Business owners can stay on top of their finances by taking a digital approach and using online accounting software like Xero. Designed with small business owners in mind, Xero is user-friendly and it allows you to track payments, invoices, bank accounts and effectively manage your cash flow.

Main benefits of Xero include:

  • Real-time reports
  • Online hosting
  • Safe storage
  • Automatic back-ups
  • Automatic upgrades
  • Multi-user access
  • Worldwide accessibility
  • Technical support

Follow this link if you would like to know more about Xero and how you can get the most out of it.

Trust Berley to help you manage your cash flow

At Berley, we believe that to be in business, you need to keep a cool head when tackling any cash flow challenges along the way. Every entrepreneur is a superhero in our eyes, and our small business accountants in London are ready to help you reach your full potential.

Apart from cash flow management, we can also help you with:

  • Tax advice and tax planning
  • Completing tax returns
  • VAT
  • Payroll and PAYE
  • Management accounts
  • Bookkeeping
  • Company audit

Our services include a fixed monthly fee, honest answers and no hidden charges. Call us on 020 7636 9094 or use our Online Form to arrange a no-obligation meeting.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.