Make sure you’ve got money in the bank to cover every eventuality
Making sure you know how cash flows in and out of your business is vitally important. Failure to know these details can result in even the most successful business being brought – abruptly – to its knees. Therefore, it’s imperative to keep on top of your finances.
It may sound daunting or a process predominantly reserved for larger companies but, since most small businesses will experience cashflow problems at some point, keeping money in the bank should ensure a healthy financial outlook for the year.
There are several ways to achieve this…
Your first step should be to prepare an estimate of income and expenditure over a period of time. This will compare your projected sales and non-sales income against your costs to help predict your bank balance, which can alert you to any problems before they arise.
Rent or broadband bills will remain fixed throughout the financial year but energy costs, such as heating or electricity, may vary from season to season. It is worth you factoring in these variations to provide the most accurate cashflow forecast for your business. Make your projections pessimistic to provide a realistic outcome.
Best and worst-case scenarios
As a rule of thumb, plan for three scenarios. Take your best guess, then create one scenario with 20% higher sales and another with 20% lower. This will make sure you have all bases covered, including contingency plans should the worst happen.
Know your customers
Make sure you have the full details, including the exact name and legal status, of the clients you are handling. Don’t be afraid to push for the information at the start of the process because if it’s tough to obtain now, it will be even harder to get later.
Establish payment terms
It may sound obvious but don’t take the risk of beginning work before pre-agreeing a fee for your services. Provide an initial quote for your client and only begin work if they agree to your terms.
Invoice clearly, accurately and quickly
Prompt payment can boost your cashflow and enable your business to invest in growth. Make sure your invoice contains all the relevant information your clients need to pay on time. These include contact details, services provided, pre-agreed fees, terms and conditions and user-friendly payment methods.
The days of paying by cheque are almost over and making payments should be made as easy as possible for your customer. Online banking is considered to be the most efficient payment option.
Margot James, Minister for Small Business, Consumer and Corporate Responsibility, said recently: “Prompt payment can make all the difference to small businesses. Although we have seen some progress, too many business owners have not been paid on time by their customers.”