Cash flow is king - that’s what many business leaders say. It’s no surprise, given the fact that more business fail due to a lack of cash than for any other reason. We look at some simple steps to help improve your cash flow.

1. Keep an eye on your cash flow forecast

A cash flow forecast is an essential tool to keeping track of the money coming into and out of your business before the payments happen. These projections can help you to spot any shortfalls in cash, so you can take the necessary measures.

So, how do you create a cash flow forecast? Look at your accounting records, your bank account or your sales forecasts to get the following data:

1. What you’re spending each month. List all overheads, travel, VAT, tax and other cash leaving the business.
2. What will be coming in each month. If you invoice for your work, calculate when you’ll have completed it and when you will get paid. If you get paid in advance or immediately you finish the job, then look at how much work you anticipate for that period. Be cautious, especially if you’re waiting to hear about a new contract.
3. Calculate the difference. Don’t forget to include any cash you have available in the bank but don’t include cash assets that are not readily available (e.g. money in investment accounts that require a notice period).

Because you’re looking to the future, it’s likely that your forecast will be subject to changes but it will give you a good indication of your position. David Hardstaff, a Sage Business Expert, says, “The key thing that you are looking for is the likelihood of a cash shortfall at any point, so that you have a bit of warning if you are likely to hit a problem. The forecast will tell you how long you have to react and it forces you to keep an eye on expenditure.”

Look at ways to handle late payments

For business owners and finance teams, late payments are the bane of their lives. From time spent cashing to the impact on cash flow, the issue is significant and seems to be getting worse. We have a guide that offers advice about how to minimise them and the effect they can have on your business.

Make the most of credit

While late payments into your business have a negative impact on your cash flow, finding ways to delay expenditure will help - at least on a temporary basis. Buying on credit cards or asking for credit terms from your suppliers can see you through a tough time. Remember to clear the payment when it’s due to avoid any interest costs.

Make sure your systems link together

The right data makes it easier for you to track the cash in your business. Look for ways to automatically link the information in different systems together, to save you time and give you a clearer view of your cash flow. Here are some ways you can do this:

• Set up bank reconciliation - this allows you to match the data in your bank statement with your accounts and is available in all Sage accounts software.
• Connect your payments and accounts software - if you take payments through Sage Pay, you can automate the transfer of data into your Sage accounts software so you’re always up to date.
• Link up your accounts and CRM - knowing which customers pay late allows your sales team to chase up or amend credit ratings for future work.

Look for places to reduce costs

The final stage, if you’re still struggling with cash flow, is to look for ways to reduce your expenditure. Don’t see this as a bad thing - it’s a way of streamlining your business for growth. Even if your cash flow is buoyant, it’s still worth looking to see if there are new options available for minimising your costs. Some ideas include:

• Checking contracts to see if there are new options available that might better suit your business.
• Leasing equipment rather than buying spreads the costs and often means you can upgrade at the end of your contract, rather than being stuck with outmoded kit.
• Buying recycled materials, such as printer cartridges, not only saves you money but helps the environment too.
• Making sure you’re taking advantage of all tax rebates that are available can make a big difference. Don’t miss out on your employment allowance and, if you’re recruiting, consider employees who are under 21 or apprentices under 25 where you won’t have to pay employer National Insurance Contributions.
• Looking at your stock levels and seeing if they can be reduced can free up a lot of cash.
• Using the sharing economy to rent out office space, under-utilised equipment or even car parking space. Check any contracts to make sure you can legally do this and make sure you have adequate insurance.
• Asking your bank to review your account. Some charge extra for paying in cheques, others offer variable fees depending on the way you use the account, so it pays to check you’re on the right one for your business.