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Five-minute money masterclass: how to keep on top of your cashflow

Written by Adam Pescod on Monday, 03 June 2013. Posted in Cash flow, Finance

As proverbs go, ‘cash is king’ appears a solid contender for the title of greatest business idiom

Five-minute money masterclass: how to keep on top of your cashflow

While the average start-up may have its eyes set on the holy grail of making a profit simply by launching a product it is certain will fly into the hands of consumers, such grand plans can all but collapse if an ambitious entrepreneur doesn’t keep an effective handle on the asset that matters most: their money. Constantly monitoring your business’s incomes and outgoings, and acting upon those figures promptly and positively, can be the difference between confidently strutting down the path to glory, or stumbling down the rocky road to economic ruin. Here’s our five-step guide to ensuring that you end up treading the more favourable former route  

 Plan ahead 

Regardless of what stage your business is at, a well-conceived and comprehensive strategy should reveal where an injection of cash, whether from your own reserve or an external source, will be required. “I think it is well worth understanding your projected cashflow position – looking into the future, what liabilities do you have?” says Peter Trimm, product manager for online accountancy software service Sage One Accounts UK and Ireland. “If you look forward, you can predict what cash you are going to have coming in and going out. Then you need to manage that so you can cover off all of your liabilities, in order to pay people, including staff and the one that concerns most of our users – the taxman.”  

 

Seek favourable terms 

Sensible negotiation with your suppliers and customers on payment terms can ensure that you aren’t left facing a cash shortfall at a time of the month when you could do with it least. “It is worth asking if suppliers offer discounts for early settlement and if annual costs can be split into monthly payments,” explains Ian Lomas, client and collateral management director at Lloyds TSB Commercial Finance. “This will regulate cashflow and eliminate a hefty bill at the end of the year.” A close inspection of potential customers will also help mitigate any danger, says Trimm. “Make sure you understand who they are, what they are about, and be sure that when you are giving credit, you have understood all the risks involved.”  

Monitor figures regularly 

It almost goes without saying that not keeping an eye on the figures at every available opportunity may allow something quite significant to slip through the net. Especially in the early days of a burgeoning enterprise, having readily available data is nigh on indispensable. “If you are starting up and there is a lot happening, you need to look at your cash every day,” advises Simon Webster, managing director of chartered financial planning firm Facts & Figures. “Go online every morning and look at your bank accounts, see what cheques have cleared, what cheques have come in and what money has been paid directly into your bank accounts. And maybe look at getting a bookkeeping system that will integrate with your bank account – there are a number of these out there and it is quite a useful thing.”  

Keep reserves 

While it may seem a pipe dream to some start-ups, keeping some cash back for emergencies is achievable if you really put your mind to it, whether it be by cutting unnecessary costs or investing a little bit more in the first place. “The thing I have noticed between more successful companies and less successful ones is that the more successful are obviously well capitalised at the beginning,” explains Warren Shute, founder and managing director of financial planners Lexington Wealth Management. “So they go in with their eyes open knowing what costs they are likely to achieve – they are not trying to deceive themselves and set up on a shoestring.” Lomas adds: “Ensure all your processes are as efficient as possible. For example, turning off one PC overnight can save over £50 a year. Also, ensure you shop around for the best product and energy prices.” 

Give sufficient notice  

As much as you may wish to avoid it, borrowing a bit of cash can often be the only way to fund an essential project, but your chances of landing that loan or overdraft will fall by the wayside if you don’t inform the lender of your plans in advance. “If you do need an overdraft, you need to make sure it is all pre-agreed with the providers of the capital,” says Trimm. “It’s about making sure they’re on board with what investment they are making with you, because they are lending money to you to cover a period of time, so they need to understand and you need to be clear what that return is going to give.” He continues: “Although it is a short-term cashflow issue you need to make sure that – like any investment – the returns are adequate to take account of the cost of that capital while you are maybe going into an overdrawn situation.”  

About the Author

Adam Pescod

Adam Pescod

EB's former editor, Pescod was tasked with ensuring these hallowed pages are rich with excellent, engaging and error-free stories, all written with the entrepreneur in mind. Pescod previously plied his trade penning pieces about pubs and pints. He is also a sucker for alliteration. 

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