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Blog posts tagged cashflow
Spend wisely at the start
July 28, 2010
When starting a new business, the way that you spend your limited resources is critical to your chances of success. There are places where you can’t afford to scrimp, and there are places where you simply must not waste. You need to keep the chance of failure down by spending what you have very wisely.
- For a business with any risk, forming a limited liability company is a must. Then if the business goes down, loans and debts owed by the company won’t follow you. So set up a company by searching for “Company formation” on Google. It’s unbelievably cheap.
- There are other things to consider too. You need to keep all of your paperwork, including sales invoices and supplier charges, so that you will be able to do accounts and tax returns. But this doesn’t mean setting up a complex and expensive accounting system. It means employing a cheap book keeper for a few hours a week, or even keeping all of the paperwork in one tidy pile, so you or an accountant will be able to do the accounts when the time comes around.
- Registering for VAT, the Data Protection Act and possibly other specialist health and safety laws are other start up activities. Do these at the minimum possible cost and effort. These are overheads, not keys to your business success. You can nearly always find out everything you need to know with a few hours of research online. Everything possible like this should wait if it can.
- Don’t spend money on things that you don’t need yet. In a start up situation, tomorrow can take care of itself. The critical thing is to concentrate your money on getting your product right, making sure that your customers are happy, then selling like crazy. This is much more important than a slick operation. I’ve seen a number of people spend precious resources on preparing for massive success, only to have that success elude them because not enough attention was paid to sales growth.
- When you have a growing business with satisfied customers, then it’s the time to get better organised. As you grow, you will need to invest in systems to maintain quality, and you should also be able to drive down costs as a proportion of your sales. But all of that is for later.
It sounds easy, which it isn’t. However, following these tips will increase your chances of success. Good luck.
In summary:
- Spend the minimum on being legal and decent
- Focus on getting something customers want, and make sure that they are happy
- With that core in place, sell, sell, sell
- With sales growing strongly, invest in operations to maintain service and reduce costs
Chris Barling is CEO of ecommerce software supplier Actinic
How to manage your cashflow
June 16, 2010
Brendan Flattery, managing director of Sage’s Small Business Division, answers some key questions about the importance of maintaining healthy cashflow.
What is Cashflow and why is it important to SMEs?
“Any successful small-business owner will tell you that healthy cashflow is critical to the smooth running and growth of their business. It’s been a challenging time for all businesses recently, regardless of size, and one that will have a lasting impact on the way businesses structure and manage their operations. One of the key lessons that many small businesses have taken from the recession is the importance of healthy cashflow.
“Put simply, cashflow is the movement of money within a business, but this seemingly straight forward concept can have detrimental effects if badly managed.”
What are the likely consequences of poor cashflow management?
“Healthy cashflow is vital for all businesses, but the consequences of not managing it effectively can quickly have a massive impact. A small business can only survive for a limited period with a negative cash flow. Ultimately, the business will end up insolvent, which means it will fail because it won’t be able to pay its creditors.”
How can SMEs monitor their cashflow?
“Cashflow forecasting software is an important business tool that can not only show payment patterns and forecast the year ahead, but also highlight re-occurring late payments.
“It’s been widely reported that most failed businesses have closed because of problems caused by inefficient cashflow management rather than anything else. If small businesses put into practice the correct processes they will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues early enough. Then they can take action to avoid any anticipated downturns. More effective cashflow management will help stabilise the business, as well as ensure the business emerges from the recession in a stronger position and cash positive.”
How will monitoring and planning cashflow help?
“Julia Boggio Photography is a Sage small business customer. The business has experienced first hand why accurate cashflow forecasting is a must. They used Sage 50 Accounts forecasting tools. MD Julia Boggio says:
‘When I was reviewing our cashflow forecasts in November of last year, I could see there was a dip due in February. We reorganised our finances, cutting down on advertising and came up with an alternative contingency plan, which we put in place. This ensured we were well positioned to account for the dip and even enabled us to have a better February than the previous year.”
What impact do late payments have to a small business?
“More than half of the 2,000 small businesses polled by Sage in our monthly Omnibus survey said they had been impacted by late payments over the past year. The Department for Business, Innovation and Skills reported that more than 4,000 businesses failed in 2008 solely because of late payments.
“It is critical that start-ups and all other businesses to remain aware of exactly how much money they are owed and when payments are due. This helps to prevent late payments in the first instance. However, if they do occur, good management can ensure that they do not have a damaging effect on the business’s overall cashflow. These are all aspects that business accounting software can help you get to grips with.”
What are your top tips for maintaining healthy cashflow?
“Make sure all your employees – if you have any – are kept informed about the state of the business’s cashflow. This will hopefully prevent them from making purchases your business cannot afford. At times you might be waiting for a large invoice to be paid, so you may have to put spending plans on hold.
“Create accurate cashflow forecasts for the year ahead. It will enable you to plan for the future. Forecasts allow you to identify potential cashflow crises, for example, be identifying periods when your costs exceed your revenue. At such times, your business might need to seek financial help. To be fore warned is to be fore armed.”
Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland
- Visit the Sage website to download its guide to effective cashflow management.
Getting to grips with cashflow
March 19, 2010
Cashflow is the lifeblood of any organisation. Getting it wrong means that your business will fail, but getting it right at a time of economic uncertainty is a significant challenge.
Having a healthy cashflow is crucial for all companies, but can have a massive impact for start-ups. A new business can only survive for a short time with a negative cash flow, and ultimately the business will end up insolvent. Start-ups must adopt processes to help manage their cashflow from the moment they are set up.
Late payments are a significant problem for entrepreneurs to deal with. Half of the small businesses polled by Sage in its monthly Omnibus said they had been impacted by late payments over the last twelve months.
For start-ups waiting to improve their business cashflow, there are a number of steps to take, including:
Know where your money is – It sounds simple, but a lot of small businesses will fail because their owner doesn’t keep a close eye on the funds coming in and out of the business. That visibility is best achieved by maintaining regular updates on your cashflow forecasts.
Know your customers – Many businesses have a set date for paying invoices, learn when these are for your customers and record the date. If the date passes and you are yet to be paid, then there is a good chance that something is not right and you can follow up with your customer.
Set-up an online automated contingency plan – This will help you actively manage your cashflow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur good management can ensure the late payment does not have a damaging effect on the overall cashflow. These are all aspects that business accounting software can help you get to grips with.
By implementing theses correct processes a start-up will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues. By following these guidelines and implementing the right software, businesses can make sure they remain strong and cash positive.
Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland.
In a muddle with your numbers? Pick up the phone
September 14, 2009
One of the first things you need to do when you set up your own business is to find yourself a good accountant. However simple or complicated your business’ finances are, you are going to get yourself in a muddle if you don’t know exactly what you need to record, how to fill in your tax returns or when to file your accounts.
Speaking to the Institute of Chartered Accountants in England and Wales (ICAEW)’s Clive Lewis the other day, I learned that many start-ups don’t use their accountant as much as they could or should.
You should be able to rely on your accountant to be there for you if you call up with a query about your book-keeping, however trivial it may seem, or if you have a sudden change of circumstances – for example if a client suddenly puts in a big order and your cashflow is thrown off-balance. They should also be reminding you of deadlines for self-assessment or, if you’re a limited company, when your accounts are due to be filed.
There is certain information your accountant will need from you in order for him or her to understand your business and do your accounts for you, too, but again, a good accountant will tell you what they need. According to Lewis, your relationship with your accountant should be a long-term one with regular contact.
Ask other business owners you know who they use, or visit one of the accountancy associations’ websites to do a search for your local accountants. Even if you have a good brain for maths, you still might need somebody to hold your hand while you work out how to use your new accountancy software. Ideally, you will choose an accountant who has previously worked with other businesses of your size and in your industry.
So, don’t be shy; pick up the phone and ask away. And if the person at the other end doesn’t want to help you out, take your fees elsewhere and find an accountant who will make life easier for you.
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