It’s one of the most crucial elements that every business in the world needs to track, but as the statistics keep on reminding us, very few of them actually do.
As you may have gathered from today’s title, we’re talking about cashflow. Often dubbed as the silent killer of businesses, so-called small mistakes can lead to something much more severe.
Through today, we’ll now identify some of these mistakes to try and keep your company on the right path.
You don’t take into account all of your expenses
This is a mistake that a lot of new businesses make.
They’ll compile a list of all their regular monthly outgoings such as rent, salaries, and the like. But what they don’t factor in is the one-off or irregular payments that need to be made.
These can include anything from legal fees and accountancy bills to the price of raw materials and stock.
Quite often, this only happens because of poor administration. In other words, you just can’t remember all of the so-called smaller expenses that creep through your accounts. As you’ll find out through some of the other areas we’ll mull over today, one of the best ways to deal with this is to simply implement proper processes that ensure that each and every expense is taken into account for all purposes.
You’re not monitoring your debtor list closely enough
As the old saying goes, cash is king.
And one of the best ways to ensure a steady cashflow is by monitoring your debtor list closely.
This means sending out invoices as soon as the work is completed and following up on any late payments immediately.
You need to send reminders, make phone calls, and even employ the services of a debt collection agency if necessary. While you’ve got to have relatively relaxed payment terms as a new business, as soon as you start to cement a reputation in your industry you should look to tighten these up so you’re receiving payment for your services in good time.
Also, look at your own suppliers’ payment terms
While you’re monitoring your debtor list, you should also keep an eye on your creditor list.
In other words, the payment terms that your suppliers offer you.
Ideally, you should be looking to pay your invoices within 30 days. But in reality, this isn’t always possible. In fact, different industries tend to have different rules – the trick is being on the right side of these rules so you’re not losing out.
What you can do instead is try to longer payment terms with your suppliers. This will help to ease the strain on your cashflow.
The big problem facing a lot of companies is that there’s a giant gulf between their own payment terms and that of their creditors. Don’t fall into such a trap, as it can prove to be one that is almightily difficult to claw your way out of.
You’re not keeping an eye on your cash reserves
It’s so easy to get caught up in the day to day running of your business and forget to pay attention to your cash reserves.
But this is a mistake that you simply can’t afford to make.
It’s important to regularly review your current cash balance and make sure you have enough money in the bank to cover any unexpected costs that may arise.
This means keeping a close eye on your accounts receivable and accounts payable, as well as your current cash balance.
You’re not budgeting
It’s also essential to create a budget for your business.
This will help to identify potential cash flow issues in advance, allowing you to take the necessary steps to address them.
Your budget should include all of your expected income and expenditure for the coming year, as well as setting aside an emergency fund for any unexpected costs.
By taking the time to create a comprehensive budget and monitoring it regularly, you can be sure that your business’s cash flow is always in the best possible shape.
You’re not taking advantage of tax relief
Another crucial point is to make sure that you’re taking advantage of all the tax reliefs available to you.
These can include relief for research and development costs, capital allowances for investment in new equipment, and the VAT flat-rate scheme.
By taking advantage of these reliefs, you can boost your cash flow, without even growing your business, and significantly reduce your tax bill as a pleasant side effect!
You’re not forecasting your cashflow
A further mistake that businesses make is failing to forecast their cashflow. We should highlight that there’s a distinct difference between budgeting and forecasting, although the two are often interchanged.
A lack of forecasting means not having a clear idea of how much money is coming in and going out on a month-by-month basis.
As a result, businesses can often find themselves in a situation where they’re running low on cash and struggling to make ends meet.
To avoid this, you need to put together a cashflow forecast for your business. This will give you a clear idea of when you need to bring in money and when you need to make payments.
It’s also worth bearing in mind that your cashflow forecast is likely to change on a monthly basis. This means you need to regularly review and update it.
You’re not seeking professional advice
Finally, it’s worth noting that you should never be afraid to seek professional advice when it comes to your cashflow.
Whether you’re looking to raise finance or need help with budgeting and forecasting, getting a second opinion can be invaluable.
A financial advisor or accountant can help you to identify any potential issues that could affect your cashflow and provide advice on how to address them.
A concluding note
As you can see, cashflow is a critical element of any business and one that you simply can’t afford to take lightly.
By avoiding the mistakes listed above, you can help to ensure that your company is always in the best possible position when it comes to cashflow.