10 cash flow tips to guarantee your business's future success

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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 bad cash flow management. 

So whilst turnover and profit are important the vast majority of business failures are due to their cash flow drying up. 

Business failure is not just due to poor sales or poor service, many business failures can also be due to over trading, i.e. rapidly increasing sales and taking on large orders which they struggle to fund. 

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 increased or even declining sales – know where your business is going and the likely impact of any associated costs and resources. 

2. Know your numbers – create a cash flow forecast and understand the minimum amount of money required month to month to run your business. You should have this amount in your bank at all times! 

3. Protect yourself against bad debt – regularly credit check your customers and new potential clients. That new customer you may just have gained may be a slow payer or in financial difficulty themselves. 

4. 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. 

5. 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. 

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

7. 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 

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. March and April is 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 quiet months, then talk to your bank. They will then be more prepared to support you particularly if the know you manage your business well by doing all of the above. 

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

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 fulfill your aspirations. Contact Peter Fleming 08451631490 | 07966 686112 | E: peterfleming@businessdoctors.co.uk 

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

Next free business event:  How to create “Freedom” from your business  

Thursday 16th June – Carlisle Golf Club, 12 noon – 2.00pm Contact Peter Fleming for further information 07966 686112 email peterfleming@businessdoctors.co.uk