Seven Ways to Avoid a Cash Flow Crisis

Turner Little Ltd Companies

It is crucial that you ensure your business’ cash flow is robust. You can have a really profitable firm, but profit can often be tied up in your business. So without a healthy cash flow, you will not have the money on hand that you require pay your employees and suppliers, potentially impacting your firm’s reputation and thus, its profitability. Turner Little reveals seven ways to avoid a cash flow crisis.

  1. Write a sound business plan

Lay the strong foundations you require to decrease the likelihood of cash flow crises, by writing a business plan. In this document, clarify how you plan to earn revenue and your business costs such as employee wages and office space rent, so you have an idea of what your cash flow situation will be. You can also use your business plan to attract investment, giving you vital start-up and growth capital.

  1. Forecast your cash flow

It is advisable to draw up regular cash flow forecasts for your business. This will allow you to track your finances over the year, so you can identify any shortfalls and act to shore up your cash flow before a crisis hits. It is key to include any seasonal costs in your forecast, for example your heating expenses may rise in winter, and update the document regularly, so your cash flow remains stable year-round.

  1. Remember key dates

You should keep in mind that business regulation changes regularly, potentially imposing new costs on your business which could impact its cash flow. It is critical, therefore, that you note the dates any new regulation is coming in into your forecast, to avoid a shortfall. For example, we suggested that one of the important dates for 2017 was 1st April, as this  is when the National Living Wage rose, creating additional costs for your  business, if you hire employees aged over 25 years old.

  1. Pay your bills quickly

Pay your bills quickly, otherwise you could incur financial penalties which could reduce your cash flow. Also set clear payment terms – 30 days is standard – with your suppliers, so you can anticipate payments and keep on top of them. Take the same approach with your own customers, by sending out invoices straight away and following up on unpaid bills quickly. If you know when money is due to come into your firm’s accounts, you can predict your future cash flow situation more accurately.

  1. Trim down your outgoings

It is wise to look at where you can make savings on your business costs regularly, so you negate the likelihood of a cash flow crisis before one strikes. We would advise you to assess how often you pay suppliers, utilities, tax bills etc. You may be able to negotiate with your creditors and create payment deals which are more favourable to your business, perhaps by adopting more flexible payment terms.

  1. Find extra capital

If you spot a cash flow problem on the horizon, prevent it by finding the capital you need to meet your overheads. You could seek a line of credit from a bank, via a letter of intent or a draft service. This allows you to secure capital against a customer’s debt, so when they repay so can you, although you will also be required to pay interest. You could also utilise alternative sources of financing, such as crowdfunding – where you secure money from a large pool of small investors, to boost your cash flow.

  1. Sound financial infrastructure

It is wise to create a sound financial infrastructure, when you’re setting up your business. If you have the right business bank account for your firm, for example one which allows you to pay unexpected costs without incurring charges, you will find it easier to manage your cash and head a crisis off at the pass. We can advise you on this issue, as the Turner Little team are experts on UK business banking matters, ensuring that you can control your cash flow and build a strong, profitable enterprise.

Turner Little

Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider. You can receive our monthly newsletter by signing up using the form below.

 

Seven Ways to Avoid a Cash Flow Crisis
Tagged on: