How to manage cash flow in a small business
Whatever your business is and however big or small it is, you need control over your cash flow to make sure you stay afloat and keep moving in the right direction.
Let’s get our terms right: your cash flow relates to the predictions you can make about what your business can spend in the coming months.
We help startups and small businesses to understand and manage their cash flow right. In this post, we share our best tips on how you can do the same.
Make every penny count
It’s the old adage “look after the pennies and the pounds will look after themselves.”
Spending wisely means keeping a close eye on your outgoings and being able to justify every single business expense you make.
All expenses must bring new value to your business or they must represent an essential expense that you can’t avoid.
Remember: treat every penny as a prisoner. If you need help with what counts as a valid business expense, see our article Startup expenses: what you can and can’t claim to find out more.
Check who owes you money
It’s all too easy to generate and send invoices, then to forget about them and move on. But it’s wrong to assume that every invoice will be paid correctly or to the timescale you expect.
Do your checks: see that your invoices are paid properly and at the right times. If you’ve agreed 30 or 60-day terms of payment, your customers should stick to them. So long as both parties agree upfront, keep in mind that you’re allowed to set your own boundaries for payment.
The important thing is to follow up and ensure that what you’ve agreed is what’s actually happening.
This doesn’t have to be a manual chore. Cloud accounting software such as QuickBooks and Xero will show you at a glance who owes you money. Keeping a close eye on things should mean that more of your invoices are paid on time.
Keep your VAT money in a second account
If you’re VAT registered, it can be easy to forget that 20% of the takings that go into your main bank account will need to be paid back during quarterly VAT returns.
To avoid the risk of accidentally spending that money, we recommend creating a second bank account into which you place 20% of all income from your invoices.
That way, when it’s time to submit your VAT return, there’s no stress because you’ll always have funds available to pay the bill.
Set up alerts to check bank balances
Many bank accounts offer free SMS or app alerts to let you know when your balance is above or below a threshold. Take advantage of these so you can be informed of an unexpected drain or surplus on your account.
Checking your bank balance regularly is sensible practice – especially to help you avoid potential fraud – but the true view of your accounting situation should come from your accounting records, which we recommend storing through a cloud accounting package such as QuickBooks or Xero.
Let’s sum up
We hope these tips help you to take control of the cash flow in your small business.
If you need more advice or direct help managing your accounts, get in touch and let’s see how we can put your accounts in order.