A business cannot function without cash flow. You need continued income to ensure you can pay your bills, your suppliers, and subbies. Managing cash flow means having confidence that the money you need will be available when you need it. If you struggle with this, read on and discover how you can unlock cash flow success. You can also contact us for a FREE spreadsheet to help you manage cash flow.

Unlock Cash Flow Success:

Common Cash Flow Challenges:

In a trades business, you will struggle with cash flow if you foot the cost of purchasing materials before a job begins, but your clients don’t pay until you complete the job.

Unlock Cash Flow Success: Charge a customer for the materials in part or full before the work starts. It can also be advantageous to set up trade accounts with material suppliers so your bill for materials doesn’t come in until after your client has paid for the job. Consider raising intermittent invoices on larger jobs, ensuring you don’t have to wait too long for cash.

Invoicing and Payment Strategies:

Slow payers will slow your cash flow. So, make sure your customers are clear on your payment terms before they agree to the quote so they know when and how to pay your invoices.

Unlock Cash Flow Success: Ensure your terms are on your quote and invoice. Raise an invoice once the job is complete. This usually follows the conversation with the customer, where they agree the job is complete and are happy with the work. Reminders are helpful; you can send a ‘polite reminder your invoice is due to be paid tomorrow’ and regular reminders to late payers. These can often be set up to go automatically from your bookkeeping software.

Forecasting:

It’s important to forecast your revenue and costs by month. You should include all costs, including fixed costs like rent and rates and variable costs like labour and materials.

Unlock Cash Flow Success: Use what you already know to be true to build your forecast. Look at your bank statements over the last few months to a year to ensure you’ve captured all your monthly, quarterly, annual and ad hoc expenses. You may not know the exact amounts of all your expenses, so make an educated guess based on historical costs or any new contracts you’ve seen. It’s better to have an estimate than not to include it at all!

Contact us to receive our FREE Cashflow Forecast Template.

Managing Expenses:

Every business has expenses. However, managing and reducing these can significantly affect your cash flow.

Unlock Cash Flow Success: Trade accounts are helpful, especially if you can negotiate discounts and favourable payment terms. Regularly reviewing your suppliers and costs is helpful. Think about:

• Requotes for insurance each year
• Switching your utility suppliers and,
• Looking for the best bank account fees.

We often see businesses that haven’t reviewed their costs in years surprised at who they pay and how much. When you have a cash flow forecast, you can compare your actual income and expenditure against what you forecast to see what’s different and then investigate why.

Mind the Gap:

Most businesses sometimes have periods of low cash flow or financial gaps, but the secret is managing these effectively. So, head up and face on!

• Keep your suppliers notified if you need to make payments a little late. Suppliers are often okay with short delays so long as you keep them informed and it’s not a regular occurrence. If you have a cash restriction, you must decide who to pay and how much. You may decide to pay your older supplier invoices, but not the most recent ones, until the cash is back in the business.
• It’s also helpful to monitor your income. If customers don’t pay, you need to remind them to pay. Don’t be afraid to take legal action if necessary. Ensure you’ve kept a record of your correspondence and that the customer was clear on your terms.
• There are options such as credit cards or loans, but the best rates are available for those who plan for capital expenditures, not those who need emergency cash. That’s why a forecast is so helpful; if you notice a gap in six months, you have plenty of time to prepare a solution and perhaps apply for a short-term overdraft facility.
• Use your accounting software to help you plan. You can see in real-time how much you are due in from your customers and how much is due out to suppliers. You can use Xero to set up planned payment dates to help you keep track of what to pay and when.

A Word on Accounting Software:

While we love Xero, keeping your entries up to date is essential; if you do that, it’s clear to see what you are due and what you owe. We can help you with that!

Case Study 1: We worked with a client whose Xero account showed that they owed over £250k to their suppliers. Once we’d been through and reconciled the accounts up to date and removed any incorrect and duplicated transactions, the actual amount owed was closer to £75k. The client was having to use supplier statements to work out who to pay and when, which led to more issues with accidental multiple payments to suppliers due to duplicated Xero entries. Once we’d brought Xero up to date, it was clear to the client who was owed what and when.

Case Study 2: We worked with another client who was struggling financially. Their Xero hadn’t been well maintained, with many incorrect allocations and transactions. Once we’d brought the account up to date, we could identify which customers hadn’t paid. We contacted those clients and managed to chase in over £20k of outstanding debt. Clearly, the client was delighted, both with the money in and because they didn’t have to chase for the money themselves, therefore protecting the relationship he had with his clients.

Ready to find out how we can help you? Contact us HERE.