When you're running a small business, cashflow is the most important element of your success. Cashflow is what can mean the difference between your success and failure, and it's a huge concern for most entrepreneurs. There's a lot of pressure to ensure that you are able to stay on top of that flow, and to make it a key element in your processes. Keeping a healthy cashflow is going to end up being vital for your success, and as a priority, it will shape many of the decisions that you make.
For us, one of the key points is making sure that you have systems and processes in place that can guarantee your cashflow will stay healthy. Here are some of the considerations:
Have you factored in factoring?
Debt factoring is vital for many businesses - but it's surprising how many people aren't aware of it. Essentially, debt factoring is when you go to a financial provider and you take out a loan against an invoice or a payment that is due to come in. Once you have those funds paid by your customers or clients, you pay back the the provider with an additional fee or interest. Generally, this means that you'll make a little less money, but the beauty is - you'll be able to better plan your cashflow, as you'll have the money in hand instead of awaiting payment in an invoice!
At Charltons, we can usually recommend an appropriate option for debt factoring, and it can really benefit businesses who rely on their clients to pay on time in order to maintain cashflow. Debt factoring may be an absolute lifesaver when you have one or two tardy payers holding up your pipeline!
Do you have your overheads planned for?
Knowing exactly what your business has to pay out and when is also a big pain point. If you're not carefully managing that kind of information, you can be blindsided by the same expenses and charges, month after month. However, when you know what has to go out and when, it becomes something that can be planned for, with funds regularly allocated. That helps cashflow by removing any unexpected outgoings and streamlining your finances.
Obviously, effective record keeping is the key here. You've got to be able to pull up all the right data on your business as needed. If you're using a platform like Xero, that's incredibly easy to do, but we can also advise you on some other accounting packages, note taking apps and digital record keeping solutions!
Are you planning ahead?
There are always periods in every business where cashflow is on a low or a high. For retailers for example, Christmas is a huge lift, but for many professional services industries, Christmas becomes a drop as their clients break over the holidays. As long as you're planning ahead for these kinds of eventualities, and you're away of when and why those periods are going to occur, you can ensure that you balance out the differing cashflows - by setting aside more funds in busy periods to offset the quieter ones.
For many businesses, that will come down to appropriately measuring what expenditure happens when. If there are big things that must be paid out, they can be delayed until you have a higher cashflow than normal for example.
In any business, cashflow is king. By being aware of it, taking precautions and ensuring that you have plans and processes in place, you can keep your business running smoothly in any situation, throughout the year!