A common mistake small business owners make is confusing profit and cash. Do you open your bank account and wonder where your cash has gone? Do you feel like you've lost control of your cash on a day to day basis?
In our post Covid world, it's more important than ever to get to grips with your cash flow and make a sound plan to take control.
Did you know?
A profitable business can go out of business if it’s starved of cash.
A business making a loss can survive with access to funds from the owner, investors or funding
It's not enough to just look at your profits - every business owner needs to understand how cash moves through their business and the key drivers that can affect it.
Most business owners tend to wipe all the cash out of their businesses - living in the now and not planning for the growth and the future. In addition, looking back retrospectively as with traditional compliance tasks does not help your cash flow.
Our role at Purple Accounts is to help you become much more aware of the cashflow cycles in your business and to challenge you to do a few things differently to help your business.
To start, here's 3 key facts about cashflow:
Without cash your business will not survive
Managing cashflow is integral to your business processes
You need to understand your key cashflow drivers
Here's 10 ways to improve your cashflow.
1. Reduce overheads
Review your overheads regularly. Identify non essential costs and get rid. Control expenses and staff expenses tightly. Find spare capacity in your team to optimise their value
2. Go digital
Kiss goodbye to show boxes and bags. Use Hubdoc or Receipt Bank to get your receipts to your accountant quickly and easily. Make sure your bank account is linked to your accountancy software such as Xero or Quick Books so your financial information is at your fingertips 24/7
3. Increase sales
This can be achieved in a variety of ways:
Generate more leads
Increase conversion rates
Increase customer spend and frequency
increase customer retention rates
Increase customer referrals
4. Boost your gross profit
Negotiate terms with suppliers or look for alternative suppliers
Avoid giving your time and products away for free and doing favours
Reduce wastage and review your ordering levels
Review your systems and processes (Try Sweet Process)
5. Improve accounts payable process
Ask or look for prompt payment discounts from suppliers
Ensure you’re not paying late payment penalties or interest
6. Improve your accounts receivable process
Invoice on the go (use Xero)
Obtain payments in advance of the work, take a deposit or provide stage payments
Make it easy for customers to pay you
7. Review your debts
Check and review interest rates
Review how much you’re taking out of the business
Look at grants and tax relief/s you may be able to claim
8. Monitor and forecast
Create a financial plan and cashflow forecast with help from your accountant
Keep everything up to date and review each day/week/month/year
9. Control your inventory process
Get a stock control system or make your current one more efficient
Find areas for improvement
Identify stock shrinkage and how this is being controlled
10. Get an expert
Don't be a slave to stuff you don't need to do. Many business owners think they will save money by doing the donkey work themselves. But this is not the case and your accountant should be seen not as a cost but as a value driver and trusted expert to help your business grow.
The focus is on improving your bank balance, so firstly ask yourself..
Do you know your 7 Key Numbers? (the 7 most important numbers you'll ever need)
Do you have a Cashflow Forecast? (a 12 month report showing the cash flowing in and out of your business)
Do you keep your accounting software up to date?
Do you have a trusted expert to hold you Accountable to your plan?