Anyone who has started their own company will tell you that managing cash flow for a small business can be difficult. It is imperative that you have a tight grip on your finances and ensure that your cash flow is managed effectively, to really make your money work. Our experts have suggested a few handy tips for managing small business cash flow, allowing you to keep your finances in check while growing and developing your business.
1. Keep up-to-date books
Your cash flow can only be as good as your reporting and accounting, especially for small businesses where there may be smaller contingency margins. As such, you need to ensure that your accounts and finances are updated accurately on a regular basis. By ensuring that you can always view an accurate state of your finances, you have more information with which to direct your cash flow.
2. Don’t be too lenient with your clients
Unpaid invoices will have a disastrous effect on your cash flow, so ensure that you are not too soft with your clients, while remaining fair. If you find that invoices are often left unpaid, or paid late, then it may be worth reassessing your invoicing strategy and find something that works better for you. Equally, don’t be afraid to tell your clients you will pursue formal action if they continuously leave their bills unpaid. Solutions such as invoice finance are available to help manage and mitigate late payment issues.
3. Ensure business and personal finances are separate
Many small businesses are linked to their founder and owner, who is likely to have close connections with the business finances. Despite this, it is essential that all personal and business finances are kept separate from each other; mixing these accounts will lead to inaccurate information and may be questioned by HMRC when your tax returns are submitted. Separating these accounts will also ensure that you are in a good position to work out how much to pay yourself (and your employees!), and establish how much additional money you have to reinvest in the business helping it to grow.
4. Build up your cash reserves
Having a safety net of cash could help to save your business if trouble arises. It provides extra security for any unexpected events, as well as allowing the confidence for growth and taking risks, knowing that you can mitigate any consequences. While it is not always possible to create large cash reserves, especially for smaller businesses, having a small amount set aside will give you the flexibility of investing while also gaining the best rates of finance.
Managing small business cash flow – where to find out more
We can help provide funding for purchases and business growth so you can protect your cashflow – please get in touch if you’d like to discuss this with us.
Find out more about our services on our invoice finance page.