06 Jun Keeping in eye on cash flow in five simple steps
Even before the impact of Brexit and Covid-19, cash flow was a real concern for almost half of small business owners in the UK (48%). Last year, over half borrowed money or used savings to keep their business running (52%), while over two-fifths felt continual late payments were affecting their mental health and causing sleepless nights (43%). And here’s the part we find really frustrating: small businesses lost an average of £26,000 by having to decline work due to insufficient cash flow.
Fast forward to 2020, and if the last few months have taught us anything, it’s the importance of having a good understanding of our business finances and cash flow. While it may be difficult to plan for the future right now, we can definitely take stock of our current financial situation and put steps in place to futureproof against any eventuality as we begin to emerge from lockdown.
Here are five simple ways we can alleviate financial concerns before we find ourselves needing to make tough decisions about the future.
- Automate your accounts
Using bookkeeping software can make your day-to-day accounting easier and can potentially reduce your accountant’s charges as well. And the great thing is, it doesn’t need to cost you a fortune, with some packages starting from as little as £6 per month.
At Organised You, we’re huge advocates of QuickBooks for small businesses, as it’s so easy to use – with clear dashboards and fully customisable invoices – and it’s good value for money. It’s also possible to link the software to your business bank account for swift, hassle-free reconciliation each month.
The benefit of using this kind of software is that you can start to create invoices the minute to start work for a client, simply adding a new line item when you need to. This provides a handy way of logging the work you’re doing (or products you’re selling) throughout the month, saving you from the dreaded end-of-month panic as you rush to copy information from disparate sources such as emails, Word docs, notepads – or worse still, try to recall the month’s activities from memory. Another benefit is that you can send out instant automated reminders for any late payments, rather than having to draft cumbersome emails.
Other bookkeeping platforms for freelancers and small businesses include Wave, Xero, Sage, Zoho Books and FreeAgent.
- Monitor monthly income
Making a conscious decision to assess your income every month can make a big difference to how confident you feel about your business overall. Where is it coming from? Are you heavily reliant on servicing one client, or perhaps generating sales from one product? Do you tend to have busy months and quieter months? Importantly, are these fluctuations affected by the current economic situation, or would they have occurred anyway?
Once you have an idea of these trends, you should be able to make more informed business decisions – for instance about your marketing strategy – and you’ll be much more likely to cope with sudden changes in cash flow as a result.
- Assess expenditure each month
In a similar vein, it’s important look at your outgoings every month to give you an idea of your cash flow. Do your outgoings exceed your income? If so, is this a regular occurrence and why? Again, are these trends being affected by the current climate, or are they normal for this time of year? What are you spending money on, and crucially, can you reduce those costs at all? Cost-savings during the lockdown could include negotiating a temporary discount on commercial office rent, or pausing a particular subscription/service that you’re not using at the moment.
There are many areas in which you can cut costs on an ongoing basis, such as payment machines, insurance, waste management, office equipment, telecoms and broadband, utilities etc. If you’re unsure where to start with switching providers, or reducing/renewing your current packages, it might be a good idea to consult a specialist cost-saving provider such as Great Annual Savings Group, or Utility Warehouse. Alternatively, there are several free online resources such as MoneySuperMarket or smallbusiness.co.uk.
- Set goals and budgets
It’s no use keeping your income and expenditure in check if you don’t have an ultimate goal of where you want to be each week, month or year. Once you’ve assessed your income trends, set yourself a specific, realistic turnover level to aim for at each milestone. Then, once you’ve evaluated your outgoings, set yourself a budget to stick to going forwards, especially in areas in which you tend to overspend.
- Check your checklist!
If you struggle to visualise your finances, create your own personalised checklist of the items you need to monitor on a weekly, monthly and annual basis. If you’re unsure where to start, download our free handy Bookkeeping Checklist today!