Financial guidance for start-ups

Contents

  1. Managing Your Finances
  2. Cash Flow
  3. Tax

Cashflow

There’s an old adage in business that “cashflow is king”. In fact, in Bytestart’s top ten tips to recession-proof your business, this piece of advice comes in at number three: “Have the best cash management approach - it’s simple and it’s the most important part of the business.”

What is cashflow?

Cashflow isn’t the same as profit or loss - it’s actually about the timing and amounts of money that flow into and out of your business. Even profitable businesses can have such serious cashflow problems it leads them to bankruptcy. For example, while you may be in profit, if you don’t have enough ready cash to pay your suppliers, you’ll soon run out of things to sell.

And while having too little is a problem, having too much cash in your business bank account does not make sense either. Put spare cash into an account with a high rate of interest, or invest it. Your bank should be able to advise you.

Improving cashflow

If you’re just starting out, you’ll need to know how to set up a cashflow forecast. Great advice can be found on the Business Link website, but in the meantime, here are MORE TH>N BUSINESS’ ten top tips.

  1. Send that invoice!

    It may sound obvious, but when you’re up to your ears in work, you can forget to do some important admin - like sending out invoices. Bill as soon as work is completed and on larger projects, ask for regular payments over the course of the work, rather than waiting until completion.

  2. Reward good payers.

    Consider offering a discount for early payment to encourage people to post their cheques a little bit quicker.

  3. Don’t be too generous.

    Why give customers 30 or even 60 days to pay? Many would be happy to settle their accounts as soon as the work is completed. You could even ask for a down payment up front, so your customers fund the work, not you.

  4. Chase up money owed.

    Be firm but fair and chase up any money you’re owed as soon as you can. You are able to charge interest on late payments, but it’s best not to let things get that far. For that reason, you should always do a credit check on customers by checking bank references, using a credit check company like Experian or even having a look at a listed company’s accounts at Companies House. The Better Payment Practice Campaign (BPPC) has more information on carrying out credit checks.

  5. Use some savings.

    If cashflow is temporarily tight, put money into the business yourself. As cashflow improves, you can always pay yourself back from the profits.

  6. The appliance of science.

    Ask to be paid electronically so you don’t have to face the infamous ‘cheque’s in the post’ excuse or wait days for money to clear.

  7. Limit the amount of stock you hold.

    Having a lot of stock can really tie up all your spare cash. Ask if suppliers can deliver more frequently to avoid this.

  8. Manage your suppliers.

    You may have a great relationship with yours, but don’t let that stop you from shopping around. If you find someone cheaper, your regular supplier may well be prepared to do a deal.

  9. Approach your bank.

    If cashflow is tight, ask your bank if they can extend finance. A word of warning though - this should be a last resort. If the bank is worried about the state of your finances, they may call in your overdraft, adding to your problems.

  10. Keep everyone in the loop.

    If you are experiencing any cashflow issues, keep your creditors informed because anyone owed more than £750 can ask a court to wind up your business.

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