Superfast Business Wales Digital Adviser Ian Jones explains his top tips for keeping your cash flow under control as well as online tools which do the hard work for you

There are two main strategies that improve your cash flow: increasing the amount of incoming money and reducing the amount of outgoing money. Think of cash flow as a set of balancing scales, or a seesaw – the more goes out the more one side sinks, the more comes in the more the other side comes back into balance. Your job is to manage your business in a way that ensures that is there always more on the incoming side than on the outgoing.

Image representing growth of money


That way you will ensure you have enough money to pay your overheads and your material costs, pay your staff, put some money away for future expansion or a rainy day and importantly pay yourself.

All this is easier said than done though, and too many businesses still struggle to manage their cash flow adequately, often resulting in a host of problems ending up at the business owner’s door – suppliers wanting payment, landlords demanding rent, tax and rates authorities asking for money, staff needing wages, the list goes on and on.

Help is at hand though as there are some basic tips that any business can adopt and use to make life easier and more profitable.

Know how much you need to break-even

Before you can work towards a positive cash flow, you need to know how much you need to earn to cover your costs. If you can establish your break-even point, the point at which you are making enough profit to pay your bills each week you’re doing something right. Let’s look an example of a break-even calculation.

If your average gross profit margin is 50% (i.e. If you sell £100 of materials the cost of the goods is £50 and the profit on the sale is £50), and your weekly overheads are £500, then you need to make £1000 of sales to pay these costs, as £500 is 50% of £1000. So once you have made £1000 of sales in any particular week, any extra sales are real profit for you.

Doing this gives you a clear aim, and if it makes it easier for you to measure you can break it down into smaller amounts, for example I need to make sales of £200/day or £25/hour.

Set invoice timelines and terms

If your business is one which extends credit terms to customers it is absolutely imperative to establish very clear payment terms, in writing, before taking on a new client or supplier. Make sure to lay out when payments for invoices are expected, whether it’s immediately upon invoice or within 15, 30 or 60 days. Ensure as well that you set a clear credit limit, just as your own suppliers will when dealing with you; and stick to it.

For particularly resource-heavy projects, it’s also recommended that you ask for an initial deposit so that you have some cash to cover necessary expenses. If you are a painter and decorator, ask your client for the cost of the materials before you start work.

Then, ask for the rest of the payment upon reaching certain milestones or deliverables – for example, on a construction project when the foundations are complete, or for a consultancy assignment once you have delivered your initial report.

Again, ensure that all this is recorded in black and white and that the customer acknowledges receipt of your email and accepts your terms.


Put cash flow over profit

Most people think that the secret to entrepreneurial success is profit, profit, profit. But actually, it’s all about how you manage your cash flow. Get that right and profit will follow as night follows day. Always check your earnings against your break-even point.

If you seem to be earning more than that yet money still feels tight, you probably have an issue with your accounts payable (money out), accounts receivable (money in) or you are not accounting for all your costs fully.

Delay or reduce your expenses

While bringing in more money is always a good cash flow management strategy, cutting down on costs can achieve similar results in a different way.

If you have upcoming payments, see if you can negotiate for an extension. Even just a few extra weeks, or even days, payment time can significantly improve your cash flow. If you have unused equipment, cut down on storage costs (and bring in some extra cash) by renting or leasing out equipment. Find other ways to increase your profit margins – remember if you cut your costs by £1 per item it has exactly the same effect as your customers paying you £1 more each time.

So don’t get too comfortable with your suppliers, challenge their pricing, and keep looking round for alternatives. Business is competitive and there is often a more cost-effective solution that you could take advantage of.

Reduce your stock

Clearing out old, out of fashion or damaged stock can really help kick-start healthy cash flow. Stock in the warehouse has a value, but you cannot pay your rent with it. Set a target to reduce your stock by, say, 10% and turn this into cash. You will be surprised how quickly this can work and how it can boost your bank balance.

Be persistent

As the old adage goes, if you don’t ask, you don’t get. Set aside time each week in your calendar to contact clients and ask them for payment. It’s surprising how quickly they can fall into the habit of putting you at the top of their payment list if you make a point of reminding them on a regular basis when payments are due. Remember, your job is to supply high quality goods and services, theirs is to pay the bill.

Customers who don’t, or won’t, pay on time are a distraction you can do without so make sure you keep on top of them and get your money on time.

Online tools which provide a spare pair of hands

To help you keep track of where your money is and how you can make best use of it, we strongly advise that you use one of the many digital accounting tools available. These suit businesses of all shapes and sizes and will help save you time and provide extra resource. There are many to choose from, but here are three which we, and our clients, have tried and tested.

To find out more about available online accounting software and tools download the free Superfast Business Wales Digital Toolkit for Business.

1. Sage Business Cloud Accounting

Formerly known as Sage One, Sage Business Cloud Accounting is an online accounting and invoice management solution for small businesses. It offers core accounting, project accounting, expense management, and compliance management within a single program.

Sage manages all the documentation and processes required in business payments such as price quotes, estimates, statements, and invoices. It offers integration with all the major banks, enabling you to import all payment transactions automatically. All information is available in a single dashboard, which helps you to stay up to date with cash flow and pending payments.

The service features tax management, which calculates applicable taxes using the transaction data, and cash flow forecasting, to estimate cash requirements in the future based on historical transactions.

It also has payment services, which allows users to make payments directly using Sage accounts. Users can also make payments using their PayPal accounts.

2. Intuit Quick Books

QuickBooks has one of the most prominent profiles when it comes to accounting software and importantly continues to have regular updates, which ensures it keeps pace with changing requirements. More recently, users have been given a number of new tools to work with. These include an income tax estimator tool to help with self-assessment deadlines.

Other updates include improved personalised cash flow insights plus an expanded QuickBooks Employee Portal. QuickBooks has a range of solutions that will suit just about any kind of organisation too, from one person businesses through to much larger concerns.

QuickBooks can be accessed in a number of ways. Many choose QuickBooks Online, which can be done from a web browser, however if you prefer you can download a Windows or Mac app. QuickBooks also offers mobile payment services with its GoPayment product as well as Point of Sale packages, both of which are useful for business users’ both instore and mobile locations.

3. Xero Accounting

Established in 2006, Xero is a web-based accounting system designed for small and growing businesses. Xero can connect small businesses with their clients, suppliers, and bank, and provides business owners with instant visibility of their financial position.

Xero can quickly be accessed from any device with an active internet connection and its accounting features allow small businesses to view their cash flows, transactions, and account details from any location. Bank transactions are all automatically imported and coded.

Online bill pay helps keep track of spending and stay on top of bills due, improving relationships with the vendors that provide critical business materials. These are three of the most popular and effective solutions available but there are plenty of others you may wish to consider.


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