Essential tips for protecting your business cashflow

In an exclusive article for Bytestart, Stuart Lynn of business software company Sage provides some pragmatic advice for protecting your small business cashflow.

As the Bank of England continues to caution over the gloomy economy, anyone who has not considered how the imminent recession is going to affect their wallet and mortgage is a rare breed indeed. With economists warning of economic meltdown, the fall-out of the imminent threat has thus far focused on how the City, and man and woman on the street will cope. But what does the recession mean for the lifeblood of the UK economy, the SME? How will small businesses cope with the knock-on effect from the housing market and the high street?

The Office of National Statistics reports that UK consumer inflation has reached its highest levels in 13 months, driven by high food and fuel costs, and the SME community will be directly affected. As credit availability and disposable income reduce, the demand for goods and services will fall. As bottom lines are directly impacted, the key objective for any small company, right now, is to control costs and become market resilient.

This is no time for knee jerk reactions though. I often hear that when money is tight two of the first areas to suffer cut-backs are marketing and staff training and development but there are other operational and housekeeping efficiencies that can be made, before stripping the all-important asset generation elements of a company.

So, looking first and foremost at cashflow and cashflow blockages, here are some tips to help stay on top:

Top Tips to Stay on Top

1. Always conduct a credit check against prospective customers

Set your customer realistic credit limits and aim to trade with companies that you know are creditworthy and have a good track record of paying their bills.

2. Set out your terms and conditions – and stick to them

Whether your business terms are seven days or 30 days, make sure your customers and clients are clear about this from the start. Include your terms with order confirmations and invoices.

3. Always check your invoices

Avoid invoices being returned or delayed by addressing them to the proper department and a named individual if possible. Include details of the job, a purchase order number, the correct amount, your business terms and a date. Issue invoices immediately on completion of the job and follow them up with a phone call.

4. Don’t be afraid to adopt a follow-up system for credit control

Call your customers if their payments are late and issue statements and reminder invoices. Be alert to possible problems if customers begin to act differently or become difficult to get hold of.

5. Manage your suppliers

You could get a better deal if you shop around and negotiate longer credit terms and volume discounts with your suppliers. This could give you more breathing space and spare cash to reinvest in your business.

6. Keep your records in order

Keep a record of all payments, bank statements and bills. Bookkeeping may be mundane, but it is essential to keep track of the cash that is coming in and out of the business. You may find it easier to computerise your accounts; there are a variety of software packages available to help you do this. Alternatively, employ a professional accountant or bookkeeper.

7. Shop around for your banking needs

Research has shown that the main high street banks do not always offer the best rates and services for smaller businesses. There is so much competition between banks at the moment that you can afford to take your business elsewhere. Work out your specific needs and compare different charges that apply to your company.

8. Don’t hold too much stock

Holding more stock than you need costs your business money so plan ahead carefully, and be aware of your customers’ buying patterns. It may be possible to arrange more frequent deliveries from your suppliers so that stock levels can be kept to a minimum.

9. Think about alternative ways of increasing cashflow

Banks and loan companies are not the only ones who can offer financial assistance. An alternative might be equity finance, which involves giving up shares in the company. For some sectors and businesses, grants or special rates may be available. Another option may be sale and leaseback of assets.

10. Communicate

Remember to keep everyone, including your bank, suppliers and customers up to date. Tackle cashflow issues early on so they don’t develop into business problems later.

11. Avoid overtrading.

Try to double check that you have enough assets, people and capital to be able to deliver on your orders before you take on the work, this means you shouldn’t have to take on any extra credit or disappoint your customers.

Finance issues aside, your next priority is to ensure your customers are satisfied – they’re the lifeblood of any business. You can achieve this a number of different ways from ensuring your staff are trained in customer service, listening to feedback from your customers and having a procedure to deal with complaints. If you have just set up your business then you have a great opportunity to introduce excellent customer service from the beginning. Established businesses can review their existing policies to ensure they’re providing the best possible service.

Investing in new or upgraded software can increase business performance and efficiency as well as cost-savings. Careful research and planning into identifying and choosing the right software will pay off, indeed it may be worth using the services of an IT consultant. An IT consultant or value-added-software reseller can advise you on how to specify, source, install and get started with new software.

As I’ve detailed above, there are pragmatic and constructive moves that you can take, that will not only help recession-proof your business, but also help build your company for profitable future growth.

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