Category: Cashflow

How to Create a Balanced Business Budget

Posted on | by Jessica Weston | Leave a Comment on How to Create a Balanced Business Budget

Creating a balanced business budget can seem like a daunting task, but it doesn’t have to be. There are a few simple steps that you can take to make sure that your budget is both realistic and achievable. We’ve put together a step-by-step guide to creating a balanced business budget so that you can take the guesswork out of the process.

Step 1 – Calculate Your Income

The first step toward creating a balanced business budget is to calculate your income. This may seem like a no-brainer, but it’s important to be as accurate as possible when estimating your income. After all, your budget can only be as balanced as the income that you’re bringing in. To get started, take a look at your past few months of financial statements and try to come up with an average monthly income.

If you’re just starting out, it’s important to be realistic about the amount of income that you can realistically expect to bring in. Don’t forget to account for seasonal fluctuations in your business’ income.

It’s also important to consider all of your streams of revenue. If you’re selling products, be sure to include both the cost of goods sold as well as any shipping and handling fees.

After you’ve calculated your income, it’s time to move on to expenses.

Step 2 – Fixed Costs

In order to create a balanced budget, you need to figure out what your business’s fixed costs are.

Fixed costs are those expenses that stay the same each month, such as rent, utilities, and loan payments. These are non-negotiable expenses that you have to pay no matter what.

Step 3 – Variable Costs

Variable costs are those expenses that fluctuate from month to month, such as inventory, shipping, and marketing.

The key to creating a balanced budget is to make sure that your variable costs don’t exceed your income. This can be a challenge, but it’s important to keep an eye on your spending in order to stay within your budget.

Your variable costs will increase along with volume of production. So if you sell more, you’ll send more. It is important to track your variable costs closely as your business grows.

Accounting software can help you track your income and expenses so that you can see where your money is going each month. This information can be helpful in creating a realistic and achievable budget.

Step 4 – One-Off Costs

There are always going to be one-time costs associated with running a business. These costs can include things like equipment purchases, website development, and trade show fees.

When budgeting for one-off costs, it’s important to consider both the short-term and long-term impact of the expense. For example, a new piece of equipment may be a large upfront cost, but it could save you money in the long run by increasing efficiency.

Step 5 – Consider Your Cash Flow

Another important factor to consider when creating a budget is your business’s cash flow. Cash flow is the amount of money that is coming in and out of your business each month.

It’s important to have a positive cash flow in order to maintain a healthy budget. If your expenses are higher than your income, you’ll need to find ways to cut costs or increase revenue.

There are a number of ways to improve your cash flow, such as offering discounts for early payment, setting up automatic payments, or offering payment plans.

Step 6 – Putting It All Together

Now that you’ve calculated your income, expenses, and cash flow, it’s time to put it all together to create a balanced business budget.

However, you can’t just create a budget and then set it aside. You need to revisit and review it regularly to make sure that it’s still accurate and on track.

As your business grows and changes, your budget will need to change too. Be sure to review it at least once a month to make sure that it’s still in line with your current situation.

Creating a balanced business budget is an important part of running a successful business. By taking the time to calculate your income and expenses, you can ensure that your business is on track for long-term success.

Things You Didn’t Know Your Accountant Could Do

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Did you know that your accountant could do more than just help you with your taxes? In fact, accountants can help you with a variety of tasks, including bookkeeping, financial planning, and even business consulting. If you’re not taking advantage of all the services your accountant has to offer, you’re missing out on valuable assistance and wasting money. 

Let’s take a look at six things that your accountant can do for you that you may not have considered until now.

#1 – Strategise

One of the most important things your accountant can do for you is help you plan for your business’ future. They can help you set financial goals, identify key performance indicators (KPIs) and create a strategy to improve the financial health of your business.

This is especially important if you’re thinking of expanding your business or making any major changes. Your accountant will be able to advise you on the best course of action to take and create a plan of action to ensure your success.

#2 – Cash Flow Management

Another important task your accountant can help you with is managing your business’s cash flow. They can help you track where your money is coming in and going out, identify any areas where you may be overspending, and provide advice on how to improve your cash flow situation.

This is vital for all businesses, but especially small businesses who may have limited resources. By keeping a close eye on your cash flow, you can avoid any financial problems down the road.

#3 – Debt Management

Not all debt is bad. In fact, some debt can be used to help your business grow. But it’s important to know how to manage your debt so that it doesn’t become a burden. That’s where your accountant comes in.

Your accountant can help you understand the different types of debt and their pros and cons, as well as develop a plan to pay off any debt you may have. They can also negotiate with creditors on your behalf and help you get better terms.

If you’re struggling with debt, your accountant can be a valuable ally.

#4 – Help with Loan Applications

If you’re thinking of applying for a loan, your accountant can help you with the process.

They can advise you on what type of loan would be best for your business and put together a package of financial statements and other documentation that lenders will require.

They can also help you understand the different terms and conditions of loans so that you can make the best decision for your business.

Applying for a loan can be a complicated and stressful process, but with the help of your accountant, it doesn’t have to be. A great accountant will prepare a strong pitch for your business to maximise your chances of success and help you to negotiate the best rates and terms possible, whilst ensuring that you understand exactly what you’re signing up for.

#5 – Increase Efficiency

Your accountant can help you to streamline your business operations and increase efficiency. They will take a close look at your current systems and procedures and make recommendations for improvements. This could include automating tasks, eliminating redundant processes, or improving communication between departments. In addition, they can help you to implement new technologies that will save you time and money.

By increasing efficiency, you can free up time and resources to focus on other areas of your business. This not only makes your business more profitable, but also more enjoyable to run.

#6 – Support You

Accountants are often thought of as primarily being number crunchers, but first and foremost, they’re actually great listeners who take the time to understand their clients’ individual pain points. This allows them to provide targeted support and advice that is tailored to each client’s specific needs.

In addition to providing expert advice, your accountant can also be a great sounding board for your ideas. They can help you to flesh out your plans, identify potential problems, and find creative solutions. And when things get tough, they’ll be there to lend a supportive ear.

Final Thoughts

At the end of the day, your accountant is more than just someone who does your taxes. They’re a valuable business partner who can help you to overcome challenges, grow your business, and achieve your goals. If you’re not taking advantage of all the services your accountant has to offer, you’re missing out on valuable assistance and support.

Taking out cash for Directors vs Sole Traders

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Every business owner needs to take cash out of the business at some point. But if you’ve just moved from being a sole trader to a limited company, you may get caught out by the different rules around withdrawing cash from the company.

Why are the rules different for directors and sole traders?

When you’re a sole trader, you and your business are one and the same legal entity. So taking cash out is a simple procedure. But as the director and shareholder of a limited company, you and your business are two separate entities – and that means that money in the business is no longer your personal money. It’s money that belongs to the limited company.

Do I need to keep my personal and business money separate?

Regardless of which way you operate, you should always have separate business and personal bank accounts. The business account should be used to deposit all funds from sales and other business income, and to pay for purchases and other business running costs.

As a sole trader, there’s no legal difference between your personal and business funds. The main reason for a separate personal bank account is to keep your personal expenses separate from your business expenses. So, rather than mixing up things like mortgage or house rental payments, groceries and household bills with your business expenses, you have two distinct accounts – one personal, one business.

If you need money for personal expenses, you just transfer it from the business account to your personal account – it’s all yours to do what you want with. Obviously, you need to leave enough in the kitty to pay suppliers when their bills become due. But, as a sole trader, there’s nothing to stop you draining the business account completely, if you want to.

How do I draw money out as a limited company director?

For a limited company, it’s a legal requirement to have a separate business bank account. Even if you own the company 100%, the money in the company bank account belongs to the company, it does not belong to you.

So, how do you take out money to live on?

There are four ways of taking money out of the limited company, and in each case you should do it by transferring funds from the company account to your personal account. Preferably you should make these separate transfers, even if they happen on the same day.

  • Claiming back your expenses – any business expenses that you’ve paid personally can be reclaimed. Your expense claim should include receipts or other documentation, and a description of what they were for.
  • Being paid a salary – you can opt to be paid a salary for your role. This salary is processed through your payroll system, with any PAYE and NI deducted. The net pay due should be transferred to you on the normal company payday.
  • Withdrawing a dividend – where there are sufficient after-tax profits available in the company, you can withdraw dividends. Paying yourself and your fellow directors a dividend requires some formalities, including board minutes and dividend vouchers.
  • Directors’ loans and repayments – if you’ve previously loaned money to the company, the loan can be repaid to you. Where nothing is due, the company can lend you money but there may be interest charged (or a taxable benefit may arise if no interest is paid). The company may also be liable for a 33.75% temporary tax charge (section 455 charge) if the loan is not repaid by the end of your company’s financial year.

Talk to us about taking out cash as a director

Withdrawing funds from your company for personal use takes some serious thought and planning. If not, you may well end up with an unintended overdrawn director’s loan account.

It’s important to remember that the company’s funds are not yours in the same way that a sole trader owns the funds in their business account. Getting professional advice as a director is the best way to manage your cash withdrawals from the business.

We’ll work with you to:

  • Decide the best split between salaries and dividends
  • Help with any board minutes and other documentation
  • Help ensure that your company’s bookkeeping records accurately and timeously reflect the movement of funds between you and the company.

Get in touch to talk about your cash requirements.

How to Use Profitability Ratios to Grow Your Small Business

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If you’re looking to grow your small business, you need to understand profitability ratios. These ratios help you measure how efficiently your business is using its assets and generating revenue. There are three main types of profitability ratios: operating, asset use, and contribution. In this blog post, we’ll discuss what each one is and how to use them to make smart decisions for your business.

What is a Profitability Ratio?

A profitability ratio measures how efficiently your business is using its assets and generating revenue. Profitability ratios are used by lenders, investors, and profit-seeking businesses to evaluate a company’s ability to generate profit relative to sales, assets, or equity.

Profitability ratios can be calculated on an annual basis or over any period you choose. For example, if you’re evaluating your company’s profitability ratio based on the sales of widgets in a specific month, you could calculate each ratio using that period.

Operating Profitability Ratio

The operating profitability ratio measures how much profit your business generates from its operations compared to the revenue it earns. To understand this better, let’s look at an example.

Let’s say you own a company called Widget Co., which manufactures widgets and sells them to retailers for $100 each. In one month, your business produced 100,000 widgets and sold 70,000 of them at $100 each. The operating profitability ratio would be calculated as follows:

First, we calculate the gross profit by subtracting the cost of goods sold from the revenue. This gives us $700,000 (70,000 x $100 – 100,000 x $60).

Next, we divide the gross profit by the revenue to get the operating profitability ratio. This gives us 0.70 (700,000 / 1000000).

This tells us that for every dollar in revenue Widget Co. generates, it earns 70 cents in gross profit.

Asset Use Profitability Ratio

The asset use profitability ratio measures how much profit your business makes from the use of its assets, minus the cost of those assets. This ratio is helpful for businesses that have a lot of fixed assets, such as property and equipment.

Let’s use the same example as above to calculate asset use profitability ratio. In this scenario, Widget Co.’s fixed assets are worth $200,000 and its total revenue is $100,000 (70,000 units sold at $100 each). We’ll also assume that the company has no debt or other liabilities.

First, we calculate the net profit by subtracting all expenses from revenue. This gives us $300,000 (100,000 x 100 – 70,000 x 60).

Next, we divide the net profit by fixed assets to get the asset use profitability ratio. This gives us 0.15 ($300,000 / 2000000).

This tells us that for every dollar in fixed assets Widget Co. owns, it earns 15 cents in net profit.

Contribution Profitability Ratio

The contribution profitability ratio measures how much money your business makes from each sale after deducting variable expenses such as material costs and labour. It’s also known as the gross margin percentage because it is calculated by dividing the gross margin by sales.

Let’s use the same example as above, but this time we’ll assume that Widget Co. has a contribution margin of $40 per widget (meaning it costs the company $60 to produce each widget, but it sells them for $100).

First, we calculate the gross margin by subtracting the cost of goods sold from the revenue. This gives us $600,000 (100,000 x $100 – 100,000 x $60).

Next, we divide the gross margin by sales to get the contribution profitability ratio. This gives us 0.60 (600,000 / 1000000).

This tells us that for every dollar in sales Widget Co. generates, it earns 60 cents in gross profit.

This figure can help you to understand how effective your marketing efforts are and whether you’re pricing your products correctly.

How to Use Profitability Ratios

Profitability ratios are helpful when used alongside other financial metrics because they can help you make sense of your business’s overall profitability and identify areas where you can improve performance. For example, if your company’s asset use profitability ratio is low, you might consider investing in more fixed assets to increase profits.

Likewise, if your contribution profitability ratio is high, you might be able to reduce the cost of goods sold by finding a cheaper supplier or streamlining production.

Final Thoughts

Keeping track of your company’s profitability ratios can help you make informed decisions about how to improve profitability, reduce expenses and grow your business. A more profitable company is better positioned to earn more revenue, hire new employees, and reinvest.

7 Benefits of Coworking Spaces for Online Businesses

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Coworking spaces are becoming more and more popular as the number of remote workers continues to grow. However, what many people don’t realize is that coworking spaces offer a lot of benefits for entire online businesses, too. Let’s take a look at seven reasons why online businesses should consider coworking.

#1 – Better Value for Money

Coworking spaces often represent better value for money than renting your own shared office for businesses that can function remotely for a large portion of the time.

In addition to this, coworking spaces offer amenities like printing and meeting rooms that are not included in many private office memberships, and you can simply pay for the hours you use.

There’s also less up-front investment with a co-working space.  You can usually start by paying for a day or week pass, which gives you the opportunity to test out the space before signing up for a longer-term membership.

#2 – Community and Collaboration

In addition, coworking spaces offer a sense of community and collaboration that you don’t get when working from home. 

This can be extremely beneficial for online businesses who are looking to connect with other professionals and exchange ideas. 

Studies show that working from home has a negative impact on innovation across teams, so coworking spaces can be a great way to encourage creative thinking.

#3 – Scalability

Coworking spaces offer flexible month-to-month contracts, meaning that they can grow and shrink with your business. 

If you only need an extra desk for a month while you’re launching a new product, no problem. 

If your team is growing rapidly and you need more space, then you can scale up easily. 

Finally, if the time does come to move into a more permanent space, you won’t have to wait out a months-long contract beforehand.

#4 – Flexibility

In the wake of the pandemic, many businesses are adopting hybrid working, which is a mix of remote and in-office work. Coworking spaces are perfect for this style of working, because you can simply pay for the hours that you need the space. This means that you don’t end up renting an office that you’re only using for two or three days per week. 

#5 – A Better Work-Life Balance

One big downside of working from home is that it can make employees feel as though there’s no separation between work and personal life. This represents a major challenge for businesses that want to maintain a healthy work-life balance and keep morale high. However, coworking spaces can help because they allow employees to separate work and home life. 

#6 – An Attractive Workspace

Coworking spaces tend to be modern and carefully designed for optimum productivity.  This can be a major draw for online businesses who want their employees to feel inspired and motivated. 

At a coworking space, you get to access a beautiful office without forking out for expensive furniture and an interior designer.

#7 – Networking Opportunities

Many coworking spaces offer unique programming and events that can help connect with other professionals in your industry.  

There are often workshops and masterminds available, as well as social gatherings such as happy hours and dinners. This can be a great way to expand your network, get new ideas, and learn from others in your field.

Summary

If you’re an online business looking for a better way to work, then coworking spaces should definitely be on your radar. They offer many benefits that are perfect for remote workers and businesses of all sizes, and you can scale your usage as you grow. Much as businesses are replacing expensive hardware with cloud software subscriptions, many are also now opting for co-working spaces as an alternative to traditional offices.

4 Healthy Financial Habits to Conserve Cash in Your Small Business

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In order to keep your small business running smoothly, it is important to develop healthy financial habits. This means being conscious of how you spend your money and conserving cash wherever possible. In this blog post, we will discuss four healthy financial habits that can help you conserve cash in your small business. Let’s dive into how you can build habits and create a more sustainable small business.

#1 – Set Financial Goals

In order to conserve cash in your small business, you need to get into the habit of regularly setting and updating financial goals. You can do this by thinking about your current financial situation and what changes you would like to make. Consider the following questions before setting a goal:

  • What is my current profit margin
  • What is my desired profit margin after tax?
  • What are my current expenses?
  • How many hours per week do I spend on this business?
  • What would be the best ways for me to save money or increase revenue?

Once you have answered these questions, it will be easier for you to set realistic goals that conserve cash.

Remember, your goals should be SMART:

S – Specific, M – Measurable, A – Attainable, R – Relevant and T- Timely.

An example of a SMART goal would be: Increase my profit margin from 20% to 30% within 12 months by streamlining operations and reducing costs. 

The goal is:

  • Specific because it includes how much you want your profit margin to increase.
  • Measurable because you can track your progress over time. 
  • Attainable because it’s not impossible to achieve. 
  • Relevant because it will help improve your bottom line 
  • Timely because you have set a deadline for yourself.

When setting financial goals, make sure to keep the SMART acronym in mind.

#2 – Perform an Expense Audit (and Then Plug the Leaks)

In order to conserve cash, it is a good idea to perform an audit of where you spend your money. You can do this by reviewing your bank statements from the past few months and identifying expenses that are not necessary for running your business.

The next step is to cancel any subscriptions or memberships that you no longer need or use. After that, you can try to renegotiate contracts with suppliers or vendors and ask them for a lower rate on their services. You should also make sure that your accounting software is up-to-date so you know where every dollar goes in your business (and what it’s paying for).

Finally, keep track of how much money comes  in and out of your business on a monthly basis. This will help you to stay on top of your finances and identify any areas where you need to tighten the belt.

#3 – Automate Your Emergency Fund

One way to conserve cash in your small business is by automating your emergency fund. This means setting up a system where a certain amount of money is automatically transferred from your checking account to your savings account on a regular basis.

This can help you avoid the temptation to spend all of your money and will ensure that you have some funds saved up in case of an emergency.

There are a number of different online banking services that offer this feature, so be sure to do your research and find the best one for you.

When automating your emergency fund, make sure to set up a transfer that is realistic for your budget. You don’t want to put too much stress on yourself or your business by setting the transfer too high.

#4 – Monitor Your Cash Flow DAILY

Monitoring your cash flow on a daily basis is an important habit that can help conserve cash in your small business.

The best way to do this is by setting up an automated system where you receive notifications every day at a certain time of the day when there are new transactions recorded in your accounting software. This will keep track of all expenses and income so that you can quickly see where money is coming from and going to.

Final Thoughts 

Conserving cash is important for any small business owner. The small changes outlined above amount to a big difference to your finances over time, so don’t wait to implement them in your business. Remember the old adage: in three months’ time, you’ll be glad you started today.

What To Do When a Client Won’t Pay

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Many business owners have experienced the frustration of trying to collect payment from a client who simply won’t cough up. If you are having trouble getting paid, then it is important to take action quickly before the situation becomes even more difficult. In this blog post, we will discuss what to do when your clients won’t pay, and how to avoid this from happening in the future.

Don’t Make Assumptions

When your client does not pay, it is easy to assume that they are being completely irresponsible. However, sometimes clients have legitimate reasons for why payment has not been sent out. It’s important that you don’t accuse them of anything until you know the full story. This is especially true if your client has always been reliable in the past – give them the benefit of the doubt.

Keep Your Cool

In the heat of the moment, it can be easy to want to send a strongly worded email or make an angry phone call in order to get your point across. However, if you take this approach, then there is a good chance that you will only make matters worse and put future business at risk. It’s important not to jump the gun.

Send Reminder

Your clients are only human. If a client is late to pay, resend the invoice along with a polite notice that their payment is now past due. Don’t be demanding or accusatory. You should also make it as easy as possible for them to pay by including links or buttons to your accepted methods of online payment.

Contact Them Via Social Media

If your client doesn’t respond to your follow-up emails within a few business days, try contacting them on social media instead. In some cases, a client might simply be neglecting their inbox and so it’s worth trying another channel. Again, it’s important to maintain professionalism and not accuse them of disappearing on you.

Send an Attorney’s Letter

If you still have not received your payment then it’s time to send an attorney’s letter. You can arrange this for an affordable fee and often the client will be unnerved enough by the suggestion of legal action that they pay up.

Small Claims Court

If you have exhausted all other options, then it’s time to take your client to small claims court. This is a last resort and it’s a fairly costly option, so it’s important to weigh up whether or not it’s worth it. Unfortunately, if this is not the case then it’s best to cut your losses and focus on preventing this kind of behaviour in the future.

Protect Yourself

It’s always better to be safe than sorry. Take steps now that will protect you in the future and avoid having this problem again.

One way to do this is by introducing late fees. Your cloud accounting software should be able to calculate and add these for you automatically. 

If you do decide to introduce late fees, be sure to communicate this clearly with your clients and give them plenty of notice so that they can’t accuse you of taking them by surprise.

You should also make sure that all of your clients are aware of how to pay online so that they have instant access to their account details at any time.

In addition to this, you should consider asking for payment upfront to protect yourself.  This could be a 30%, 50% or even 100% deposit.

Finally, make sure that you have the right legal contracts in place  so that you are better able to take action if a client still fails to pay.

Conclusion 

If you find yourself in a situation where your client hasn’t paid you, it’s important to keep calm and take the proper steps. Make sure that before taking legal action, you’ve exhausted all other options by sending reminders and social media messages. If these tactics still do not work, then consider contacting an attorney or small claims court for assistance with collecting payment from clients who won’t pay on time. Finally, make sure to put the right steps in place to protect yourself against this situation in the future so that you can concentrate on running your business rather than chasing up payments.

6 Strategies to Survive a Cash Flow Slump

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In business, cash flow is just as important as profit. If your business is a car, then cash is the fuel in your engine; when it runs out, you’ll stop moving. A study by the U.S. Bank found that 82% of failed businesses cited cash flow problems as one of the main reasons behind their collapse. Therefore, it’s essential that you prepare for cash flow problems and understand how to survive a slump. 

1) Annual Discounts 

When cash is tight, it’s worth looking for ways to get a significant inflow into your business. One way to do this is to offer your customers an attractive discount for an up-front annual payment. For example, you could offer them one-month free when they pay a year in advance. This will give you a big cash injection that can help you to get moving again. 

2) Line of Credit 

A line of credit is essentially a hybrid between a credit card and a bank loan. This style of borrowing has many benefits and can be a godsend when you run into cash flow problems.

Much like a credit card, a line of credit is a preset amount of money that a bank or credit union has agreed to lend you. You don’t actually have to use it until you need it. You can borrow money at any time and pay it back either immediately or in increments. A line of credit usually has a higher limit than a business credit card. As with a bank loan, interest is charged as soon as money is borrowed. 

The flexibility of a line of credit makes it a great solution for smoothing over cash flow issues. The best time to organise a line of credit is when your company is in good financial health because this puts you in a better position to negotiate good rates and terms. 

3) Cut Down on Unnecessary Expenses 

When cash is tight, it’s worth reviewing your bank statement and looking at which expenses you can eliminate. Getting rid of costs that don’t drive value can really improve your situation. For example, you may be paying monthly software subscriptions, when the free version is sufficient for your needs. You also may still be forking out for forgotten-about products that you no longer use, or overpriced services when you may be able to get a better deal elsewhere. 

4) Shorten Payment Cycles 

Many businesses offer 30, 45 or 60 day payment cycles because that is simply the way things have always been done. However, in the digital age, such long payment cycles are no longer necessary. Nowadays, you can send your invoices via email so that your clients receive them instantly, and electronic payments mean that you no longer have to wait multiple days for cheques to process. Shortening your payment cycles means that cash lands in your bank account faster, and can thus put an end to a cash flow slump. 

5) Reach out to Existing Customers 

If your cash flow slump is due to a shortage of sales, it’s worth re-engaging your existing customers. More often than not, customers don’t stop buying from you due to dissatisfaction; they simply become disengaged because you fail to nurture them adequately. It is dramatically cheaper to retain an existing customer than to acquire a new one, so during a cash flow slump you should focus your marketing efforts on your existing customers. Be sure to nurture them via social media and email newsletters, and offer them an attractive deal or discount to re-engage them.

6) Stay Motivated 

Last but not least, it’s vital that you stay motivated during a cash flow slump – now is the time to work harder than ever. Surviving a cash flow slump is about creativity, communication and hard work. Although slumps can be demoralising, it’s vital that you stay motivated and work to use the above strategies to solve your money problems so that your business stays afloat. 

7 Ways to Boost Cash Flow for Your Small Business

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Cash flow management is one of the most difficult parts of owning a small business. Even if your business is profitable, cash flow problems can make you feel like you’re in a never-ending cycle of feast and famine. If it seems as though money is leaving your business faster than it’s coming in, read on for seven ways to boost your cash flow and escape the financial see-saw ride.

1) Stay on Top of Your Books

We’re willing to bet that bookkeeping is not your favourite task, but it can significantly improve your cash flow. Keeping your records up-to-date helps you to identify areas for improvement and get a handle on exactly where your money is going every month. Cloud accounting software such as Xero, Quickbooks or Freshbooks can make this process infinitely easier. You can upload your receipts, keep track of your invoices and create reports or projections to help you improve your money management. 

2) Reduce Outgoings

It may seem like obvious advice, but reducing your outgoings is important. Once you get a clear picture of your monthly expenditure, get creative and look for new ways to cut costs. This could be cancelling subscriptions, shopping around with utility suppliers or streamlining your workflows.

3) Equipment Leasing or Loans

Buying new equipment outright can put a serious dent in your bank balance and damage your cash flow. It may be worth considering leasing equipment or taking out an equipment loan instead. Both options are more expensive than making an outright purchase but are very helpful in terms of cash flow, so it may well be worth it.

Equipment leasing is ideal if you only need equipment for a short period of time, or if you anticipate you will soon need to upgrade it. You may also have the option to purchase the equipment at the end of the lease, giving you more time to build up the cash reserves to do so.

If you want to buy your equipment but are concerned about your cash flow, a loan could be a good option. Equipment loans function in a similar way to a traditional bank loan, but tend to be lower-risk. Rather than one big lump sum payment, you can pay for the equipment in manageable increments and you will own it once the loan is paid in full.. 

4) Keep an Eye on Inventory 

Holding onto large amounts of stock that isn’t moving ties up your capital, so it pays to manage your stock carefully. You should only purchase stock that you know you can sell. You should also keep a careful track of expiration dates so that you can move products before they become obsolete and regularly review sales figures so that you know which stock moves quickly, and which tends to stand still. 

5) Offer Discounts for Large Orders

If cash is tight, consider appealing to customers by offering attractive discounts for large orders. Not only does this create a big cash inflow that can help you to get moving again, it also helps to shift stock that may have been sitting in inventory for a while.

6) Better Invoice Management

In order to improve your cash flow, you need the money you’re owed to come in as quickly as possible. Sending invoices quickly and being diligent with payment reminders makes a big difference when it comes to getting paid on time; if you forget to chase up an invoice, you can’t blame your customers for forgetting too! 

If you struggle with late-paying customers, introduce a late fee to encourage them to pay you on time. You may also want to consider offering a discount as an incentive for early payment, as this will likely speed things along.

7) Use a Business Credit Card

A business credit card should not be used for long-term borrowing, but it can be a fantastic solution for short-term cash flow issues. This allows you to smooth over any issues and borrow interest free for a short period of time. Of course, it goes almost without saying that you should manage your card responsibly and aim to pay your balance in full each month.

Summary 

With a few common sense tips and carefully implemented strategies, you can boost your cash flow and ensure that your business always has enough gas in the tank to keep going. Cash is king in business and it is often worth making small concessions to profit in order to keep it flowing, for example with equipment leasing or offering discounts for early payments or large orders. When you stabilise your cash flow, you have more freedom to grow and invest, not to mention far less sleepless nights spent worrying about running out of funds. 

Cash is not profit and vice versa

Posted on | by Jessica Weston | Leave a Comment on Cash is not profit and vice versa

The purpose of a business is to make money, and that means you have to know the difference between profit and cashflow.

Net profit is what you have left after you deduct all your business expenses from all your revenue. You change net profit only by changing the things that affect revenue and expenses.

For example, if:

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cashflow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on. 

Note that a profitable business does not always have good cashflow. And a business with good cashflow is not always profitable. For example, you can have good cashflow, and loss-making expenses.

To work out how fast you can grow your business, you need to look at your projected cashflow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

  1. Protect your cash position, by knowing what it is. Build a cashflow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every dollar you spend reduces cash reserves. The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cashflow? Make a time to talk to us. We are here to help.