Above anything else, cashflow is the lifeblood of a small business. No matter how good your product or service, if you spend more money than you make you’ll fail.
Knowing what’s coming in and what’s going out is fundamental to running a successful business.
In its recent Three Year Glitch report, Intuit, the company behind QuickBooks accounting software, polled 500 small business owners and sole traders from across the UK, all of whom had been in business ﬁve years or less, asking them for their thoughts on the challenges they have faced in starting up.
A total of 64% of the businesses polled started with less than £5,000 and 44% had either run out of cash or come very close since launch. With such narrow margins for error, the report provides a timely message to early-stage businesses that kepping an eye on cashflow is essential.
These are some of the common cashflow problems to look out for:
If your small business accounts are a mess, it’s hard to get a clear picture of where you are with your cashflow. Keeping up-to-date and tidy accounts will help you see your company’s financial position at a glance and spot a forthcoming cashflow crisis in time to head it off.
It’s no good doing lots of work if you’re not keeping on top of the invoicing. A good motto to have is “kill it and bill it” – get the work done and get the invoices out.
Some businesses also get too busy or are too polite to chase up those outstanding invoices. Don’t fall into this trap – late payments can wreak havoc with your cashflow.
Having a good system of book-keeping will help you get invoices out on time and see when they’re late so you can chase them up.
It’s a good idea to track sales and income monthly and monitor patterns. If things start to dip you can try and head off a drop in cashflow by rethinking your marketing and sales strategy to boost income.
Other cashflow issues to look out for are:
- Overtrading – taking on more than you can manage can lead to unfulfilled orders or shoddy work, leading to payment disputes or lost contracts
- Too much debt can become expensive and eat into profits
- Holding too much stock – if you constantly have more than you can sell, consider an ordering rethink
- High overheads – running a lean operation, especially in the early days, will help your cashflow.