The third in a series of Small Business Basics by Lisa Martin, Executive Director of professional bookkeeping and accounting firm, GoFi8ure.
Cashflow – don’t let yours get down to a trickle
Christmas is coming and ‘oh my goodness’ it’s also nearly the summer holidays. You’re probably going to close your business for a couple of weeks while everyone has a jolly good break.
That’s wonderful. We all need to recharge our batteries. But, unless you are in retail and plan to only close for a day or two, this basically means no income while you’re shut – and no income can have catastrophic effects on your cash flow.
If your accounts are organised and your bookkeeping is all up to date, this shouldn’t be a problem. You’ll likely have prepared your cash flow projections some time ago for this period and will have chased up your debtors to ensure all monies owing will come flooding through before you have to pay out holiday wages for your staff.
The trouble is that only a small percentage of small businesses are in this situation. Many meander along day to day without even thinking about what’s around the corner and others tear through their business hours like a raging torrent with no time to stop and look at what’s going on. Come the end of the year, these business find that their cash flow has run dry and they have to borrow.
It’s a fact of life that small business owners are time short. However, there are a few time-efficient strategies that you can put in place to ensure you don’t get caught out:
· Control your costs – you should live and breathe this one.
· State payment terms on your invoices – so everyone knows when payment is due and you can instantly spot overdue payments.
· Send out payment reminders – send these out close to the payment date and as soon as a payment has been missed. Generate reminders via your online accounting system and you can keep track of when you’ve chased and when it’s time for a firm phone call.
· Use financial forecasts – analyse your accounts, create projections to limit financial surprises.
· Know your finance options before you need it – know how and what you can borrow. Don’t wait until you’re on the brink before you visit the bank.
And if you don’t where to start, ask your Accountant or your Bookkeeper – easy!