Keeping your cash flow as fluid as possible is critical, giving you enough space to pay your bills on time without incurring additional costs – such as interest on overdrafts or supplier penalties.

So, whether you’re currently dealing with financial issues or simply looking to put precautionary measures in place, let’s explore some of the most effective ways to monitor your cash flow forecast, and keep it flowing.

What is a cash flow forecast?

Also known as a cash flow projection, this is a financial report which makes a reasonable estimation of your future cash flow over a period of time. The more information you put into it, the more accurate it’s likely to be, so include the details of all your income and outgoings.

Some of this data will be easier to predict, such as ongoing employee costs, whilst other areas might be more difficult – such as analysing current sales trends and predicting how they’re likely to continue.

What can I do to make cash flow forecasting more robust?

Improving data quality can make forecasting far more reliable, so it’s often useful to keep your records as up-to-date as possible. For instance, by entering transactions into your bookkeeping more frequently, updating salary changes in your records, and regularly reviewing your spending. We’ll go over a few techniques for this.

Stay on top of invoices and late payments

Unpaid invoices can put significant strain on a business, and cost many organisations a great deal of money each year. Making sure you are paid by customers on time (within your stipulated payment terms) is essential for cash flow, helping you to pay your own bills on time.

Customers who are consistently late making payments can also make forecasting and budgeting extremely difficult, because you can’t plan ahead properly.

Review your invoicing regularly, and send payment reminders before the deadline. You could even consider offering incentives for early payment or implementing late payment penalties to put a robust process in place.

Create and review financial reports

Using your accounts data to create financial reports is invaluable when it comes to improving cash flow and stabilising your finances, helping you optimise how you manage operations. It will also help you spot ways to reduce costs, capitalise on tax relief, budget better and head off potential cash flow issues before they become a real problem.

Financial reports allow you to see the bigger picture of your business’s performance, which you can use as a navigating tool to steer you in the right direction. Using fact-based data as a guide is a far better way to bolster your cash flow than operating on guesswork or reactive responses.

Be realistic about costs, overheads and expenses

It’s easy to underestimate how much it costs to run a business – it very rarely ever ends up being the case that you spend less than you expected, unfortunately.

This can lead to running out of funds faster than you’d like, which can put a serious dent in your cash flow.

Along with a realistic approach to your outgoings, it’s also important to review them regularly. Look for ways to reduce costs like rent, utilities, and employee salaries without compromising your business.

Some things you could consider as a way of keeping costs down:

• Outsourcing to contractors or freelancers instead of employing full-time staff
• Downsizing your workspace
• Implementing a remote or hybrid work model to lower overheads
• Switching utility providers for more cost-effective options
• Avoid overstocking inventory as it will tie up cash in stock and storage costs

Also make sure you’re assessing your allowable expenses on a regular basis to ensure you’re taking advantage of all tax relief available to you. An accountant will be able to help with this too.

Assess your pricing regularly

Getting your pricing right is one of the trickiest parts of starting and scaling a business. Once you have a pricing strategy set up, you should review it regularly to make sure it aligns with market conditions and competitor analysis.

This will help you maximise your profitability and support your cash flow. Keep a close eye on your financial reports and cash flow forecasts to carefully monitor your profit margins and ensure you’re earning more than you’re spending.

Many business owners are, understandably, nervous about increasing what they charge but when managed well, incremental price adjustments can be successfully implemented without alienating customers.

You just need to make sure you’re giving your customers value for money and not overcharging for what you offer.

Offer customers multiple ways to pay

Providing customers with multiple ways to pay for your product or service is a great way to support your cash flow – but not a benefit all business owners are aware of.

More ways to pay means more sales, or more payments made on time – resulting in healthier cash flow.

Practice good bookkeeping habits

Meticulous bookkeeping is one of the key cornerstones of business success and financial stability.

Accurate accounts, tax efficiency and a healthy cash flow all start with good bookkeeping practices. Establishing and upholding this will help your business in a whole host of ways, including:

• Staying on top of payments that are owed to you
• Making it easier to spot opportunities to cut costs or claim tax relief
• Forming accurate financial reports and forecasts
• Better budgeting
• Detection of errors, missing information or fraud
• Well-informed business decision-making

Hire an experienced accountant

The good news is that even though it’s your business, you don’t have to try and do everything yourself. A good accountant will help you understand your finances and keep your cash flow in check, as well as:

• Taking advantage of as much tax relief as possible to help reduce your tax bill
• Reducing expenses and wasted money to lower your outgoings
• Capitalising on the best funding opportunities (if this is a route you want to go down)
• Practising good bookkeeping habits

Often, it takes the perspective of a professional to steer you toward the most strategic and sustainable business decisions.

Find more tips and advice for your business on our website, or explore our guide on hiring the right accountant.

The post How Can I Improve My Cash Flow Forecast? appeared first on The Cheap Accountants.

Healthy cashflow should never – and we repeat, never – be an afterthought. Nurturing it consistently will help your business survive, and even thrive.

The thing is though, not all cashflow problems are created equal. In the interest of your valuable time, we’ll use this article to focus on common cashflow problems in small businesses and startups specifically.

Underestimating the costs of starting a business

As with most things in life, from holidays and house-hunting to starting a new business venture, the budget you allocate never seems to be quite enough to tick all your boxes. There are always additional expenses that crop up along the way, or hidden curveball costs that come right at you out of nowhere.

For this reason, we’d always recommend doing plenty of research or even seeking professional help with estimating your startup running costs. Run out of money earlier than expected and your cashflow will be scuppered from the offset. Taking steps to ensure your predictions are realistic helps keep your cunning plan affordable.

Failing to hit the nail on the head with pricing

As you grow your business, pricing up products and services does become much easier. A common startup problem is figuring out what to charge in the first place, though.

Carry out market research to get a better idea of what your audience is willing to pay for your offering. Even in the future, keeping an eye on what your competitors are doing will help.

As time passes you’ll naturally gather informative data about your business’s ability to make a profit. Use your financial reporting to keep an eye on profit margins, so you know when you’re charging enough or spending too much.

TOP TIP: Make an educated estimate about pricing

You can make some fairly educated decisions when it comes to pricing ready for launch. Consider how much something costs you to produce or execute, and the profit you hope to make on top.

Price too low and you won’t make enough money to sustain healthy cashflow. Price too high and you’ll miss out on vital sales. It’s a tough balance to strike but an important one to master.

Letting late payments fly under the radar

In the hustle and bustle of starting a new business, it can be easy to overlook things that are actually super important. One of those things is chasing late payments and outstanding invoices.

If you want to keep your cashflow in a healthy position though, it’s vital that you stay on top of any money that is owed to you. Good bookkeeping practices will help make sure you’re aware of any outstanding payments so you can follow them up in a timely and efficient manner.

Predicting to make too much profit too soon

Another common pitfall so many new business owners are guilty of is being too ambitious with their profitability pipeline – or should we say, pipe dream.

In your eyes, your business idea is a knockout and everybody is going to be banging down the door to get a slice of the action. Why else would you have started up the venture, right?

While this enthusiasm and ambition should never ever be diluted, it is important to be a little more rational when estimating initial profit-making.

Building up brand awareness, customer loyalty and repeat custom can take a while. Be patient, and try to remain realistic (but a bit of optimism will help too!).

Underestimating overheads

As well as under-calculating startup costs and overestimating initial profit, many new business owners are also blissfully unaware of the overheads coming their way.

If it’s a bricks-and-mortar business, things like rent and business rates can eat into your cash reserves rapidly. If you feel you need a helping hand and employ right away, salaries and employee contributions can fast become a monetary burden.

Working from home? Great, but think about the extra electricity, water, heating, gas, internet… And make sure you claim for every possible allowable expense against your tax bill.

How and why should I protect my cashflow?

Watch out for the most common cashflow issues outlined above, but there’s proactive action you can take, too.

Start as you mean to go on – Prioritising the strength of your cashflow from the get-go is a great way to bolster the financial foundations of your venture. Making cashflow good-practice part of your daily protocol will help you set up healthy habits and avoid hiccups further down the line.

Stay on the right side of HMRC – Good cashflow means you’re less likely to let your accounts go awry and less likely to miss important payment deadlines. Avoiding issues like this at all costs will keep you on HMRC’s good side – a place all business owners want to be.

Grow and scale your empire – With a solid financial profile, you can grow and scale your business with the confidence that you’ve got the cash to back you up. With rocky foundations and sticky cashflow, development is more problematic.

Hopefully these nuggets of advice have spurred you on to make sure you’re not falling into any avoidable traps with your new business cashflow. If not, go right back to the top and digest it all again because as the old adage goes, cash(flow) is king.

Compare accountancy packages, or ask a tax question for free!

The post Common Cashflow Problems and How to Overcome Them appeared first on The Cheap Accountants.

That makes answering the question of how often you should check your finance reports tricky to answer. There’s no golden rule and there’s certainly no one-size-fits-all solution either.

That said, the ideal amount is most probably a great deal more than you’re doing right now.

So, how exactly do you decipher the optimal frequency?

Mostly, it boils down to the growth stage of your business, how much time you have to dedicate to it, and whether or not you’ve got the luxury of a finance specialist (e.g., an accountant) working to your advantage.

At a minimum, checking in to review your reports at least once a month; twice a month would be even better.

In an ideal world, there would be some time scheduled in every single week, dedicated to reviewing and analysing finance reports.

What should I be looking at in my financial reports?

When doing so, remember it’s about more than just scanning all the way down to the bottom to check whether you’re in the green or the red. Particularly for startups and early growth stage small businesses where every decision made is crucial.

Naturally, a lack of time is one of the leading causes of business owners, accounts teams and CFOs reviewing financial reports too infrequently, but a lack of knowledge is also a common culprit.

As a rule, business owners and their employees perhaps don’t have the same breadth of knowledge to apply to reading financial reports that an accountant would, for example.

When they don’t know what they’re looking for, analysing reports slips down the priority list through fear of the unknown, or a lack of awareness about the value this kind of exercise can add.

When reviewing your finance reports, you should be looking out for things like:

• Profit and loss statement.
• If invoices were sent out in a timely manner.
• If all expenses recorded and up to date.
• Where cost savings could be being made.
• If you’re working within budget – and if not, why not?
• Consistency with past reports.
• The status of your balance sheet.

The benefits of checking your finance reports more regularly

While adding yet another task to your to-do list might seem pretty daunting, we can guarantee that making more time for reviewing your finance report will pay off.

To support our argument and to encourage you to make report analysis a more regular and consistent occurrence, here are just some of the main benefits:

• You’ll have the information you need to make more educated decisions.
• The decisions you do make will become more strategic, with more structured direction.
• You’ll have the data you need to back up suggestions for areas of development.
• You’ll be able to nip any unnecessary spending in the bud much earlier on.
• Your cash flow will be better protected as you can be more proactive and reactive.
• You’ll cultivate more confidence in the business decisions you make.
• You’ll be able to spot and fix errors before they have chance to become much bigger issues.

Finance reports are an incredibly valuable and insightful tool that every single team across a company can benefit from in some way. So, it’s time to start tapping in more often.

What if I don’t have time to check my finance reports that often?

We totally get it – you put the busy in business owner (humour us on that one). Lunch hour?! What’s one of those?

You most likely barely have the time to get eight hours sleep a night, never mind comb through your finance reports on a regular basis.

That’s where the beauty of working with a qualified accountant really hits home. A finance specialist like them is literally trained (and paid) to create and monitor your finance reports. It’s still crucial that you review them too (sorry), but having them as a second set of eyes will be a huge step forward.

• It will save you hours and hours of time that you can spend growing your empire in other ways.
• They have the training and acumen required to translate your reports into educated business decisions that will have a positive impact on your bottom line.
• They will also be able to spot any errors or anomalies across your accounts that could end up being problematic if left neglected.

So, if you don’t already have a business accountant on your extended workforce, now might just be the perfect time to invest.

Still not sure? That’s ok! Check our accounting service FAQs!

The post How Often Should I Check My Finance Reports? appeared first on The Cheap Accountants.

If you’re worried about the future of your business we’ve put together a list of top reasons why business go under, and how to avoid becoming the next one.

Overestimating market

Unfortunately, the market is sometimes the last consideration for some entrepreneurs. They consider their desire to own a business and their own opinion of the product or service before questioning whether anyone needs or wants it.

Not thinking of your potential market first and foremost is a huge mistake because after all, the market determines your success or failure. It’s best to always analyse whether there is a current need for your business first before you get up and running.

Losing sight of customer needs

Following on from the previous point, even if you do have a market for your business, the work doesn’t stop there. Customer needs change and develop and to continue delivering what they need you need to keep up to date with them.

Market research isn’t just something you do in the beginning and forget about. Even if you do nail it at first, it’s easy to lose sight of customer needs when you get busier and the company grows.

Regular meetings with customer focused aims will help to keep everyone on track. With every new development you make in the business, the impact on the customer must be top priority.

Make sure market research is an ongoing task so you’re aware of any improvements you need to make to keep customers happy.

Poor financial management

If managing accounts isn’t your area it can quickly become overwhelming and damaging to your progress if you get it wrong. Many people overestimate the profits they’ll make or when they’ll turn a profit. Others underestimate their tax responsibilities or the importance of emergency funds when it comes to cash flow problems.

Always be realistic about what you can afford and have an emergency fund to help soothe cash flow problems when they arise. For financial management, hire an accountant to take some of the strain off you.

Scaling up too quickly

A lot of businesses will have a good few months followed by a naturally quiet period. Those who are unaware that businesses have highs and lows, may focus only on the highs and expect nothing else in the future.

They splash the cash either on themselves or on the business, investing in shiny new equipment, new staff, new offices and so on. When reality hits and the busy period quietens down, they’re left with hollow investments that don’t really add anything except bills and upkeep. This is a slippery slope towards major cash flow problems.

All new investments should be thought out carefully and not just based on last months revenue figures. Always assume revenue will fluctuate and try to get a second opinion on all major changes.

Management skills

Not everyone is manager material. It’s more complicated than simply telling people what to do. Managing people require excellent communication and diplomacy skills as well as the willingness to take responsibility at all levels.

Many people struggle to show strong leadership which can lead to an unfocused workforce. Others are more overbearing, leading to stifled micromanaged staff. Either way, poor leadership can cause poor morale and low productivity which can snowball and damage the business.

Learn to delegate and trust your workforce so they don’t feel micromanaged. If you struggle with giving instructions, consider leadership courses instead to help you build confidence and authority.

What are some reasons you’ve seen businesses fail? How would you ensure success long-term? Please share any thoughts below.

The post Five Top Reasons Businesses Fail and How to Make Sure Yours Isn’t Next appeared first on The Cheap Accountants.