HomeNewsHow to solve cashflow problems in your business…
How to solve cashflow problems in your business…
Having a healthy cashflow is crucial for your business to thrive.
Many small businesses will face at least one month of negative cashflow each year [1]. And, a recent report showed that one in four businesses in the UK is experiencing more cashflow stress. If problems aren’t managed, they can quickly get out of hand. So, it’s important to know how to solve cashflow problems in your business now before they become bigger issues.
Starting a business is exciting, but it’s not always smooth sailing. The past few years have been especially tough with the pandemic putting a strain on many businesses. With the cost of living crisis too, it’s taking time for things to recover.
Cashflow is all about the money coming in and going out of a business. Problems happen when there’s not enough cash coming in to cover daily expenses. Even if sales are increasing, cashflow issues can still occur. For example, if prices are set too low, a business might end up losing money for every sale.
Another common problem is overtrading. This often happens when a business grows quickly and needs more resources before it gets paid for sales.
“Statistically, most businesses that fail have sound business plans and strong customer bases. They serve a need in the community and have determination and drive. So, what goes wrong? Cashflow! Getting a handle on what this means, and quickly, is the key to survival.”
The Business Village team is here to support businesses facing challenges. We can also introduce you to other specialists who can help. The sooner you deal with any problems, the faster you’ll get things under control.
There are also simple steps to help manage cashflow issues and keep your business running smoothly.
Nine ways to get on top of your cashflow problems
If you’re having cashflow problems, start by talking to your accountant. They can give you valuable advice. Also take a look at these nine strategies to help you turn things around:
1. Give yourself a moment
Dealing with financial worries can be tough and emotional. It’s ok to take a little time to process everything. If you can, talk to someone about what you’re going through.
The Business Village team is always here to listen. Once you’ve had a moment to breathe, you can start taking steps to tackle the problem.
2. Face your fears
Cashflow problems can cause massive stress and anxiety. It might feel easier to ignore the issue and hope it goes away, but that usually just makes things worse.
By facing the problem and taking steps to fix it, you can start to take control and make things better.
3. Focus on what you can control
You can’t control everything, like government decisions, the global economy, or a pandemic. But there are things you can take charge of, such as:
Creating a cashflow forecast
Reviewing and / or cutting unnecessary expenses
Following up on money owed to you
Negotiating better payment terms for money you owe
Managing your stock levels
Finding ways to increase sales
Providing great value and customer service
Building and maintaining a strong brand reputation
4. Create a cashflow forecast
A cashflow forecast helps you understand your financial situation better. It lets you see what’s coming in and going out, and helps you work out your options.
To make one, list all the money coming in and out of your business, along with the expected dates. This includes invoices and regular expenses. Aim for a 12-week forecast, but if that feels overwhelming, start with just one month.
5. Ask for help
Running a business can be lonely, especially if you’re a sole trader. Financial problems can make it feel even more overwhelming. But asking for help can ease some of that stress and give you practical advice or new ideas.
The Business Village team is here to listen and offer practical help such as cashflow forecasting.
Your bank may be able to lower your interest rates, offer a loan repayment holiday, or switch you to a better deal.
“There’s a myth that monitoring cashflow is complicated and long-winded. But it doesn’t have to be. There are lots of tools out there to help, and your accountant is one of them. With a few conversations, and a little set-up, cashflow doesn’t have to be scary.”
If you’re struggling with cashflow, try these ideas to improve your working capital:
Send invoices promptly (more below)
Check the credit of new customers to make sure they can pay
Cut unnecessary expenses – there may be regular subscriptions you no longer need
Increase your sales
Consider raising your prices
Avoid stockpiling raw materials or products
Keep track of who owes you money, and follow up
Negotiate a grace period or better terms with those you owe money to
7. Manage your income
Setting up these simple systems can help you get paid on time:
Send invoices promptly and regularly. If you delay, it will take longer for money to come into your business.
Follow up on overdue invoices, with reminders before, on, and after the due date.
Request deposits or partial payments upfront, especially for large or long-term projects. If a project lasts six months, and you invoice after the work finishes, you’d have half a year without any money coming in.
Make it easy for customers to pay with clear details and consider offering discounts for early payments.
Also, be a good payer yourself. If you’re having trouble paying, get in touch to discuss options and avoid passing your problems to other small businesses.
8. Look after your employees
Your employees are crucial to your business, helping to keep things running. Aside from the implications for them, not paying wages can damage your reputation and make it harder to attract people in the future.
Understand how they must be feeling, especially if they know about the challenges you’re facing
Communicate openly about the situation, but avoid causing unnecessary worry
Consider alternatives to redundancies, such as reduced hours, encouraging holidays during slow periods, or restructuring the business.
9. Stay on top of your tax
Income tax and VAT bills are priority debts, meaning HMRC can take serious actions to get the money. If you’re having problems, contact them straight away to avoid penalties or interest. Non-payment could lead to:
Deductions from your earnings or pension
Involvement of a debt collection agency (bailiff) which may take things you own (England, Wales, and Northern Ireland)
Taking money from your bank account (England, Wales, and Northern Ireland)
Also talk to your accountant. They can help you come up with a budget plan which you can talk to HMRC about.
Final thoughts
Without a healthy cashflow, unexpected expenses or late payments can be a big problem for your business. If you’re facing cashflow issues, don’t panic – talk to us at the first sign of trouble. We can help or connect you with financial experts.
It’s important to keep an eye on your cashflow regularly – ideally daily, but at least monthly. That way you can catch problems before they grow.
Stay on top of unpaid invoices, cut unnecessary costs, and manage your expenses. Building a cash reserve as a backup can also provide an emergency fund when needed.
“Knowing your pinch points, income and expenditure fluctuations, and storing financial reserves are surefire ways to ensure your business thrives.”
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