in-Cumbria’s Business Doctor Peter Fleming offers advice for businesses during the summer months, when cash flow is tight.

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If you have key personnel on holiday, challenged with a slow sales period, holding a lot of stock, high work in progress and slow paying customers, ensuring you spend time managing your cash-flow is vital.

Whilst turnover and profit are important the vast majority of business failures are due to their cash flow drying up. According to the Office for National Statistics (ONS) only 45% of start-up businesses survive beyond five years, 70% of VAT registered business don’t trade past 10 years. A number of other studies also show that 80% of these business failures are due to poor cash flow management.

So what steps can you take to ensure that your businesses doesn’t become a casualty and part of the above statistics?

1. Create a plan - if you are projecting declining or even increased sales – know where your business is going and the likely impact of any associated costs and the resources required.

2. Know your numbers – Having enough funds for working capital is critical, therefore create a cash flow forecast and understand the minimum amount of money required month to month to run your business. I.e. staff wages, utilities, you should ensure you have this amount in your bank at all times!

3. Get paid promptly – invoice any products and services as soon as you can, as the clock doesn’t starting ticking on your payment terms, till your customer receives the invoice.

4. Chases debtors - ensure you stay on top of who owes you money and spend time contacting them for payment. Using online accounts systems are excellent in helping you manage this process.

5. Offer discounts for prompt payment – if your terms are 30 or even 60 days consider offering 1-2% discount for payment within 10 days, a much cheaper way of improving cash flow than a bank loan or invoice discounting

6. Protect yourself against bad debt – regularly credit check existing and new potential clients. That new customer you may just have gained a large order from may be a slow payer or in financial difficulty themselves.

7. Understand your sales cycle – from point of order to deliver what is the time scale and costs associated. Ask for a down payment, deposits or agree a payment plan to help your cash flow.

8. Pay your suppliers on time – ultimately you need to keep a good relationship with your suppliers to be able to continue trading and on occasions you may also need to lean on them for extended payment terms.

9. Understand your tax liabilities – if VAT registered ensure you keep a tally each month of what VAT you owe. Likewise any corporation tax that will be due. The latter summer months can be a notorious time for cash flow issues and business failures. A good tip is to set up a second bank account and continually top this up each month with any surpluses to pay VAT and tax. Therefore you won’t have any surprises.

10. Keep in touch with your bank – if your business is seasonal or you know you are going to have a couple of quieter months through the summer, then talk to your bank. They will likely be more prepared to support you particularly if the know you manage your business well by doing all of the above.

Finally be resourceful – for instance you don’t have to own all your assets, you can rent and lease equipment from cars, vans, forklifts to even printers, photocopiers and office furniture. Whilst this may seem initially expensive at least you don’t have your cash tied up. Even by outsourcing or using subcontractors may be more cash efficient that having too many employees on your payroll through the quieter months.

If you are looking to review and then grow your business, Business Doctors Cumbria offers a free business health check to help you to establish a clear vision and to start working on the steps to fulfil your aspirations. Contact Peter Fleming phone:0845 163 1490 | mobile:07966 686112 | email: peterfleming@businessdoctors.co.uk

http://www.businessdoctors.co.uk/health-check

Partnered event: Cumbria Chamber of Commerce – Business Doctors Cumbria

2 day Business Growth Workshop - “Breaking Big”

10th & 17th August Energus, Lillyhall, Workington, Cumbria. Book by emailing Catherynn@cumbriachamber.co.uk

For further information contact Peter on 07966 686112 | email: peterfleming@businessdoctors.co.uk