CASHFLOW MANAGEMENT FOR SMALL BUSINESSES

Article by: Fourways Accountant: Annja Louca

All business owners struggle at some point with budgeting; cashflow budgets and then later profit and loss budgets. It is normal for businesses to struggle with cash flow in the early stages of the business, and whenever there is growth or uncertainty in the business. Help is at hand, there are tools that can help with cash flow problems by preparing a cash flow budget.

A cashflow budget is different from a profit and loss budget because it only focusses on cash that flows into or out of the business - what goes in and out of the bank. Whereas a profit and loss budget covers only items that are business transactions.

The big difference between the two types of budgets is that the cash flow budget includes VAT and the profit and loss excludes VAT. This is a big difference because you can imagine all the transactions include a % of VAT for a cashflow budget.

Until recently I used an excel sheet. It was easy to understand, and I just changed it every month to include unforeseen events. Unfortunately, it can take a few hours to do, and I can (and have on occasions) made calculation errors.  So, I started looking at what tools are out there to help with forecasting and budgeting and here is what I found (there are many more):

1. Frutili – I really like Frutili and it does all the important budgets and forecasting. It also links with the major online accounting packages and the interface looks great. For business owners it is £50 per month per business. It sounds very steep but, if you think of how much time you can waste by doing cashflow budgets the traditional way, this can really be a time saver. I think you need to understand what you want before you commit to this and really use it. It can also give you KPI’s which is very helpful for businesses that have strict indicators of performance.
2. Float - Float is slightly cheaper than Frutili and has 2 different packages for businesses depending on how many users will use it. With the ability to forecast cash flow years into the future, Float helps give you an idea as to where your business is headed, letting you plan more effectively.
3. PlanGuru - PlanGuru is slightly more expensive, but it includes training. It also offers an analytics tool to help entrepreneurs drill down and make sense of complex financial data.

My conclusion is that they are all good programs, but I personally use Receipt Bank (become a client with Anlo and get Receipt Bank for free!)

Top tip: Take the time to watch the demos and don’t select a package unless you are 100% sure you will use it. The subscription payments for all these packages are high and if you don’t use it, it might just make your cash flow situation worst.

Making decisions in business like ‘can we hire a new person’ or ‘should we move offices’ are a very important part of running a successful business. You need to know your numbers and know what effects decisions make on the output of your business.

You need to understand all your business commitments and make sure your affairs are in order. Understand what your debtors are going through and ensure that your debtors can pay. And if not, manage the relationship.

Business is all about relationships and managing the process.

Let’s understand the basics about cash flow budgets:

Suggestion: Make sure your creditors include all the invoices that you owe to creditors and ensure they reconcile to creditors statements. If possible, arrange with suppliers for supplier terms to assist with cash flow pressures.

Steps to take to manage your cash flow:

1. Review your debtors and their payment terms regularly. Make sure you send debtors statements regularly and if you see they are not paying as agreed, phone them. Make sure you understand what is happening in their business.
2. Understand your payment terms with your suppliers and negotiate better payment terms if possible. This will help with cash management if necessary.
3. Always reconcile your supplier invoices to supplier statements and insist on supplier statements.
4. Go through your bank statement and make sure that only approved standing orders/debit orders are deducted from your bank account. If you are unsure about any payments or deductions query it immediately. Make sure you know who to phone at the bank to query these type of transactions.
5. Never put your card details on online subscription applications unless you are 100% sure you are happy with the product. Especially when you are doing a trial and just want to try the program out.
6. Think about your taxes and make sure you have reminders scheduled for VAT and Corporation taxes in advance. No one likes to have to pay a huge tax bill when they are unprepared. Use your calendar to set reminders 2 to 3 months in advance.
7. Use simple budget tools build into your cloud accounting packages to help you achieve sales targets. If your profit and loss is making a profit, then at least you know you should get the money in eventually. But if your profit and loss is always showing a loss, then you will have cash flow problems soon.
8. Remember about capital outlay expenses like buying assets or yearly membership fees. This is an expense that always creeps on us and we are never prepared for it.
9. If possible, retain a savings account for rainy days. If your business is not in the position to save money, then try and see if you can get an overdraft or external funding for when you might need it. Do this ahead of time. Don’t wait till it is too late.

Cash flow is the biggest problem for all businesses, and it doesn’t just affect new businesses. As soon as a business goes through a growth phase you will experience cash flow problems again. Go back to basics. Look at the businesses expenses and make sure all the expenses are necessary and essential for the business to be successful. Always work on the top-line and invest in making sure your clients are good paying clients that help your business and do not cause you more hassle and admin because you must constantly chase payment.

It is more expensive to get new clients that keeping your existing clients happy. See if you can convert current clients into invoicing.

If you have any questions, contact us and we can have a chat.

To contact Annja, email: annja@anlofin.com or Esmerelda, email: esmerelda@anlofin.com or tel: 011-6581324