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Seven tips for small businesses to boost their cash flow

Owning a business is tough. It can be difficult waiting for receipts to clear. You may find you’re spending all your time trying to chase profit and leads, and neglecting your cash flow.

The above can be stressful.

Insolvency practitioners, Hudson Weir, see a large amount of companies struggling to meet their monthly outgoings.

By following their simple steps you can ensure you have your cash flow under control in order to manage your business efficiently.

Tip 1: Plan your future cash flow

Putting a cash-flow projection in place is essential.

A detailed forecast will help you plan ahead, and, if done correctly, will allow you to estimate turnover on a weekly, monthly and yearly basis. You may identify trends in your cash flow, such as quiet or busy months depending on the type of business you have.

Efficient planning will give you control over your staff, income and inventory at all times. In the long run this will ensure your business is not “caught short” at the wrong time.

You can use an Excel spreadsheet to set one up.

Tip 2: Make sure VAT is paid on time

One of the biggest wastes of money is tax and VAT penalties.

What HMRC do is charge a percentage on top of the late VAT? It is imperative this is avoided as it’s effectively throwing money down the drain.

In many cases we see a vicious circle and business owners are paying these expensive penalties every month. Don’t fall into that trap.

Tip 3: Make the most of your business credit card

If you have a business credit card, take advantage of it! You could benefit from using it to pay suppliers while you await payments from customers.

You may find some banks offer incentives to spend, such as cashback, air miles and loyalty points.

Most credit cards offer up to 21 days to make a repayment, which can be a great way to help manage your cash flow efficiently. Just make sure you pay back in time!

Tip 4: Make use of equipment financing

If you have cash flow problems it can help to stagger payments.

Say, for example, you need to buy a photocopier. Paying £200 a month rather than a lump sum of £3,000 can help you negotiate your way through stickier periods.

Tip 5: Boost repeat business

It costs five times as much to attract a new customer than to keep an existing one.

You can encourage repeat business by making your customers feel loved.

You may well need large numbers of new customers to be successful. However don’t forget that repeat customers can offer you the same benefits without the marketing costs.

To improve your relationship with your current customers you can use:

  • Loyalty and discount cards
  • Feedback forms – it is vital for any business to retain customers and build a loyal relationship with them
  • Daily / weekly / monthly offers – approximately 80% of your future revenue will come from 20% of your current customers
  • Bulk purchase discounts
  • Birthday deals
  • A mailing list, keeping customers updated with marketing emails. This will also avoid customer acquisition costs
  • Offer after-sales support

Make sure your staff are friendly, helpful and knowledgeable to make the customer experience as enjoyable as possible.

Tip 6: Enforce payment discipline

If you’re having trouble with cash flow, ensure all invoices are paid and never neglected as this is such an easy mistake to make. Check to see how well your supplier and customer terms are balanced.

Make sure your bookkeeper enters all sales invoices and makes you aware of all unpaid invoices.

It is important every invoice you send to customers outlines clear payment terms and indicates what will happen if they fail to meet these terms on time.

Charging overdue fees to customers should encourage them to pay on time. Nobody likes this but making this clear to them at the outset of the relationship will often save you from problems in the long run.

While it is imperative you ensure customers pay you, it is also crucial to keep on top of your own bills and invoices – so make sure you plan ahead for big lumps of cash like VAT and rent coming out of your account. Every month, review your forecasts.

A great way to achieve this is to put a process in place to ensure all payments are met and paid off. This could include setting up monthly direct debits, running a ledger or simply hiring someone to take care of it all for you – a good bookkeeper is essential.

Tip 7: Make the most of your money

It’s worth bearing in mind the cheapest capital you’ll have is your own retained earnings therefore don’t spend money when it isn’t necessary – if it means you need to raise more as a result as this becomes far more expensive.

Once your business is running efficiently, it may be a good idea to save or invest your funds.

Many banks offer high-interest savings accounts with competitive interest rates. This allows you to earn interest and still access your money whenever you need.