6 Tips Small Business Owners Can Use For Better Cash Flow

In business, cash is the proverbial king. Whether you’re a fledgling startup, a small business, or a huge corporation, managing cash flow is rule 101 when it comes to running a business. This is where accountants for startups can play a critical role in guiding young companies through these tricky waters.

However, despite this, according to a study by US Bank, 82% of small businesses fail because of cash flow problems, and 54% of SMEs in the UK say poor cash flow is the main reason they struggle to grow their business.

Here we share 6 tips you can start using in your business today to help improve cash flow and safeguard the interests of your business with the support of a skilled accounting firm.

1. Use your full credit terms

Businesses may pay a creditor immediately because they want it off their desk or they simply want to be nice. Sure, paying early is most likely going to help a micro-business. In other circumstances, take the opportunity to use your full credit terms – very few businesses care if you pay early, and you can guarantee they’ll be using their full terms if they do not exceed them.

2. Forecast cash flow on day-to-day movements

Many businesses fall into certain traps when it comes to forecasting cash flow. A natural assumption to make is that if you set your payment terms at 30 days’ notice, then you forecast your cash flow based on people working on these 30-day terms.

The best customers will pay you in 30 days, maybe a few days before if they’re really keen. However, a proportion of your customers will always be late. In some cases, they’ll just pay when they’re ready.

The best tip for forecasting cash flow is to work on day-to-day movements. If your wages are paid on the 6th of every month and your main client pays you on the 7th, you’re likely to have an issue if cash is tight. A monthly cash flow forecast wouldn’t suggest there is a problem at all, whereas forecasting cash flow day-to-day would highlight this potential issue.

3. Use real evidence and historical figures to set realistic sales forecasts

This is always going to be a little difficult and perhaps daunting in your first few years of business, but getting into good financial habits at the start will not only help with forecasting sales but it will also set the foundation for your future years in business. This means solid bookkeeping practices and using management accounts to help forecast sales, as well as historical data, to provide greater insight into other areas surrounding your business.

4. Use the many software tools that are lifesavers for small businesses

Use the many software tools that are lifesavers for small businesses. With accounting software such as Xero Accounting, QuickBooks, and the aptly named KashFlow available at your fingertips, as well as countless apps that plug into these systems, it’s a crime for small business owners to not take advantage of the accounting software and technology they have at hand. Partnering with a Xero Accountant can enhance this advantage by offering expert guidance on leveraging these tools.

These tools are designed with small businesses in mind to ensure business owners can easily stay on top of cash flow in real-time. Built-in invoicing software will help you to get paid faster. If payment isn’t so forthcoming, you can schedule invoice reminders to customers when an invoice is overdue, and apps such as Receipt Bank and AutoEntry make manual data entry for things like receipts, invoices, and statements a thing of the past. Engaging in outsourced accounting services in combination with your accounting software of choice, along with some handy apps, will give you a more transparent overview of your financial position.

5. Put an internal process in place to avoid late payments

Even with the latest online invoice software in place, some customers will always pay late. This is one of the main reasons small businesses suffer from cash flow issues. Set clear payment terms with each of your clients at the start of a working relationship. If this is clearly agreed upon before any work is completed, you’ll avoid any misunderstandings further down the line.

It’s important to follow a clearly defined internal process or system for chasing and managing late payments should the situation arise – this is essentially your credit control process. Some businesses might include penalties for late payment, which would usually be taken with the view that you’re happy to lose the client for good.

6. Regular contact with your customers will go a long way to avoiding late payments

Paying late is always going to be difficult (and socially awkward) if you’re having regular contact with your customers. For businesses with smaller customer bases, this could be as much as a phone call. Equally, it could be as simple as a personalised thank you note for their custom or for when a payment is received – regardless if it’s late!

Summary

Chasing invoices and payments is never easy, which means it can often end up being the last chore on a to-do list. However, getting paid quickly is so important for a healthy cash flow. Getting into good habits with your finances will inevitably have a positive effect. Engaging an Accounting Firm to handle your Management Accounts can ensure you’re following the right processes for forecasting cash flow. When it comes to getting paid, grab the bull by the horns and leverage their expertise to maintain your financial health.

Reach Out to MNE Accounting for Expertise and Support

Navigating the financial landscape of your business doesn’t have to be a solitary journey. At MNE Accounting, we understand the complexities and challenges you face. Our team of dedicated professionals is equipped with the tools and knowledge to guide you through every step, ensuring your cash flow remains healthy and your business thrives. Don’t let financial uncertainties hold you back—contact us today and let us help you secure a prosperous future for your business.