Finances – 5 Ways to Help Your Cashflow

In these times of tougher trading the biggest killer of any business involves cashflow: it’s an unfortunate fact that as soon as customers start witnessing a downturn they slow down orders AND payments. The result is a double whammy; not as much income as you’ve budgeted for & the income that the business does earn takes even longer to come in. Meanwhile you need working capital for wages & suppliers – so what do you do?

Some simple rules (some obvious, some a little less so).

1. The Golden Rule: DON’T USE CREDIT CARDS especially personal ones to finance your business. [A chargecard with a monthly limit which then gets paid in full each month is fine to have but I would suggest only using it for bits & pieces.] There are stories of a company that used a series of credit cards to finance their start-up & the turnover now runs into the multi-millions BUT they are the extreme exception & their business plan must have been based on an absolute dead cert (even then I’d say nothing’s really a dead cert in business so I reckon they just got lucky). The number of horror stories I’ve heard regarding companies who have turned to credit cards as a means of survival & the dire consequences further down their trading lives far outweigh the one success story I know about.

2. FACTOR YOUR INVOICES: Factoring isn’t a solution for all businesses but if you’re prepared to shop around & spend time comparing the different companies that offer this service (& their small-print to ensure no nasty surprises) you may find that it’s the right solution for your business. The monthly costs tend to be comparable to a part-time clerical assistant &, like having an office junior, you will have to check their work on a regular basis; it’s certainly the norm for them to be rather laid back about chasing your money (more-so than you would be) & if you take out bad-debt protection (essentially an insurance against your debtors going under) then you will have to keep a daily eye on whether they’ve transferred these risks to you (as they can tend to do). These days most factoring companies offer an online service so checking all these points is relatively simple & takes very little time.

3. SPEAK TO YOUR CREDITORS: When cash starts getting tight, swallow your pride & phone the companies you’re struggling to pay on time; most people are more inclined to do a deal if you’re upfront & honest & appear to be sorting out your situation rather than leaving them in the dark. Offer a sensible, realistic payment plan & make sure you stick to it – once you default, you’re much less likely to get any further extensions of credit.

4. BUSINESS LOAN: Admittedly when you’re at this point you may find the banks a little reluctant unless you can show your cashflow pattern over the previous 12 months & a cashflow forecast for the next 12 months backed up by proof of cuts in expenditure and/or contracts won etc. Be realistic as to what you require to put your finances right & be prepared to be able to show comprehensive workings of this to your bank manager.

5. PERSONAL LOAN: Not a decision to be taken lightly but if your personal finances can take the monthly payments AND you are actively marketing to ensure your future cashflow then injecting personal capital in the shape of a personal loan is an option. As to whether or not to pay the loan off in full if the business fortunes turn around in the near future, this is a decision best left for you & your accountant to discuss at the time based on the merits of your business and personal finances.

Above all remember, it’s very easy to live in denial & pretend all is rosy but if you take the time to sit down & analyse your business all will become much clearer & you can set your goals based on certainties rather than vain hopes.

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