Cash Flow

 

A cash flow problem occurs when the business does not have enough money coming in to meet its outgoing liabilities. 

In some cases, the core issue may simply be poor timing between the incoming and outgoing responsibilities, rather than any financial shortfall, however, either way you should never ignore any cash flow troubles, no matter how temporary they may seem. 

The success of any company relies upon a solid understanding of how cash flow works. Many believe it to simply mean a lack of funds, but there are often other causes to cash flow troubles. With a little planning and careful management, you can often prevent or at least tackle these issues as and when they arise. Whilst the following is by no means an exhaustive list, they are the most common factors leading to cash flow issues. 

 

By calculating how much the company might need to cover monthly expenses in times of emergency or unforeseen circumstances will give you a huge advantage. Putting away a small amount each month, into a separate account, can accrue the funds needed to see you through the tougher times. 

 

More than half of small businesses do not have a formal budget, but with a documented financial focus you can create realistic goals and react to changes and fluctuations in the financial climate. Overestimating expenses can be a great way to cover any small shortfalls in rising costs. 

 

Customers often make payments later than invoice due dates, which can lead to unnecessary cash flow issues. Make sure you invoice promptly and clearly set out the payment terms in advance. You can also ask for a deposit or offer incentives/penalties for early/late payments. 

 

On face value the growth of a company is undoubtedly positive, but often being unprepared for such expansion can have an adverse impact. More employees, larger premises, stock expansion and better equipment all come at a huge cost, so research and planning for potential expenses is key. 

 

When the business is struggling, it may seem logical to avoid paying yourself a salary, but this can cause more stress and negatively reflect the overall health of the company. There may also be tax implications later down the line, so ensure you give yourself a fair wage. 

 

The bottom line is your business exists because of your customers. Make sure you always keep them informed and communicate openly about any changes or modifications. Offer incentives for any new customers, and rewards for the continued loyalty of old. Always be personable, friendly and keep professional boundaries. 

 

Save a percentage of your income in a separate business account to help towards paying VAT and Corporation Tax bills.