4 simple tips for successful cash flow management

Cash flow is King for a reason. Without cash flowing through your business, it’ll grind to a halt.

A new start-up or even an established limited company can struggle with cash flow and face the worry of not being able to pay the bills. It can sadly lead to many businesses failing.

It doesn’t have to be that way.

We’re going to share our top tips for better cash flow management. The best bit is, they’re really quick and simple to do.

What is cash flow management?

Cash flow management is making sure the amount of money you have coming into your business, is greater than the amount going out.

It’s about managing your income and outgoings to make sure you have enough money to pay day-to-day expenses, invest in your business, and pay larger bills, such as HMRC.

And remember, it’s all relative. So even if you have a big job bringing in lots of money, a large turnover means nothing if your outgoings are also huge.

Staying focused on getting paid

As detailed in this snippet of the free Accelerate! eBook, you can’t manage your money if there’s nothing in your bank account, so getting paid is the first step to financial peace of mind. So:

• Be clear about your terms from the start It’s tempting to ignore the practicalities of payment just after you have won a juicy contract. But being clear and transparent (in a friendly way) about how and when you’d like to be paid increases your chances of a positive outcome.
• Invoice ASAP Too many small businesses are laid back about invoicing. It’s important to submit invoices at the earliest possible opportunity instead of giving a customer an easy excuse to delay settlement.

To learn more, download your free copy of the Accelerate! eBook here.

The importance of cash flow management for small business

Poor cash flow management is one of the most common killers of small businesses.

The ability to understand and manage your cash flow will help to determine the overall success of your business.

A business that’s in control of its cash flow will have enough money in the bank to pay suppliers, invest in new tools and equipment for the business when needed, settle the tax bill when due, and importantly, pay wages.

4 simple cash flow management techniques

The good news is, there are some simple cash flow management strategies you can use to help make sure your business doesn’t run out of money.

1. Forecast and plan

A cash flow forecast is a way for you to project your earnings alongside your business outgoings over the coming months (or even years).

• If you’re just starting up, you need to think about your initial investments; tools and insurance
• Record the work you have in the pipeline – or the work you’re looking to win
• Note the amount you’ll earn from those jobs
• List all the business expenses associated with those projects

This will give you a clear picture of your income and outgoings, so you can gauge whether there’s enough money to cover your expenditure.

Many businesses have busy and quieter periods, but your cash flow forecast will give you the visibility needed to plan for what’s ahead and devise a strategy to manage it.

For example, if the next quarter looks quiet, you may choose to increase your marketing activity to help bring more work in. If you have a few good months, you’ll know from your cash flow forecast that there are some larger bills coming up, so it’s important to put some of those earnings aside.

A cash flow forecast forms an important part of your business plan. Need help creating a plan? read our guide and download our free business plan here.

2. Separate and save

Set up a business savings account to house the money you set aside for larger bills such as those for HMRC and VAT. This should be separate from your business account, which you use for the day-to-day running of your business.

As well as setting aside funds for larger bills, you should build up a contingency fund to act as a financial buffer. This will be an absolute lifeline if a customer is late paying your invoice, if your van breaks down and needs repairs, or if you’re unable to work for an unforeseen reason.

The size of your contingency fund needs to be relative to the payment terms of your business. For example, if you have a 30-day payment term, you should build a contingency fund that’s the equivalent of at least 3 months’ income, to help keep your cash flow in a healthy position if a customer is late paying their invoice.

3. Keep on top of your payments

This one is all about payments. To improve cash flow using credit management, here’s what you need to do:

• Set out clear payment terms with your customer. You can include this on your invoice. If you choose to apply an interest rate for late payments, outline this on the invoice too.
• Invoice promptly once the work is complete to avoid unnecessary delays to being paid.
• Make sure your business is set up to accept online payment or payment by card.
• Follow up on late payments sooner rather than later. The quicker you act, the better the chance of you getting paid.

4. Use online accounting software to make your life easier

Online accounting software can help you to keep on top of your income and outgoings in one handy app, saving you time and hassle.

We recommend the 1Trade app from PoweredNow as it’s designed specifically for tradespeople. In fact, Checkatrade members get this app for free, so they can send quotes, prepare invoices, and manage jobs all in one place.

Checkatrade members can upgrade to Powered Now and get money off. The upgraded version lets you do expenses, accept card payments and submit your VAT return directly to HMRC.

Definitely check out our partners over at Powered Now, and see if the discount you get as a Checkatrade member is worth it – which it is!

How to increase your cashflow quickly

Negotiate with your suppliers

With most suppliers, immediate or 7-day payment terms are considered the norm. For trade businesses, however, this is where one of the main issues lies. You are having to fork out in advance of your customer paying.

It can be worth sitting down with your regular suppliers, explaining your desire to be a loyal customer and then negotiating better payment terms amounting to at least 30 days. Creating this ‘breathing room’ will provide you with the opportunity to manage your cashflow on all levels, so you can schedule payments such as a direct debit for van insurance and be safe in the knowledge the cash is there to pay it.

Challenge your overheads

How long have you been paying the same amount for your phone bill, insurance or office rent? Have you ever challenged these fees or just accepted the incremental costs year in, year out?

Make a clear list of your overheads and then highlight the ones that you think you could change or improve. You’ll be surprised by what difference you can make with this one simple act alone.

Improve efficiency

You may think the term ‘efficiency’ has very little to do with cashflow, but trust us, it really does. The more efficient you are in your day-to-day role, the faster the job will be finished, and the quicker the invoice can be raised.

You can also apply increased efficiency to the day-to-day running of your business by utilising a host of tech tools such as Powered Now to automate administration tasks, such as email responses, diarising appointments and generating quick quotes. This will save time, cost and resources, enabling you to maximise business hours and increase cashflow as a result. Checkatrade members get an exclusive deal with Powered Now, find out more here.

Increase profitable services

Some of your services will have a higher margin compared to others. Therefore, make sure you take the time to review the profitability of your service offering and, as a result, dedicate more time to bidding for these jobs compared to the low-income opportunities. For example, you may make a high margin on emergency call-out jobs.

Not only will you successfully grow your profit and turnover, but your cashflow will naturally increase too.

Focus on your conversion rate

With platforms like Checkatrade, you may have an influx of potential sales leads, but how successful is your conversion rate? Take the time to review how you approach each sales opportunity. Do you have a system in place? Are you efficient and professional with the quoting stage? Do you action follow-up calls to effectively close any outstanding leads?

Focusing on improving your conversion rate and particularly for higher-margin services – is one sure-fire way of increasing your sales and resulting cashflow.

It’s important to remember that your cashflow is extremely reliant on the number of jobs you have in your sales pipeline. By optimising your Checkatrade profile and working closely with the Membership Advice team, you will be able to secure and convert a steady stream of job opportunities, supporting cashflow and business growth as a result.

Quick summary

• Cash flow management is one of the most common reasons for small businesses failing.
• Cash flow management is understanding and managing your business income and expenditure, making sure there’s enough cash flowing through the business.
• To be successful in cash flow management you must first create a cash flow forecast. This projection of income and expenditure will allow you to plan your business strategy.
• Make sure your business savings account is separate from your business account.
• Use your business savings account to house your savings for larger bills (HMRC), and your contingency fund should something unexpected happen (delayed payments).
• Set your stall out clearly when it comes to payment terms and invoice customers promptly to avoid unnecessary payment delays.
• Act quickly if an invoice is overdue, and use technology to manage your accounts.
• Checkatrade members get the online accounting software, 1Trade app, for free.